Sensex Soars to Record Highs: Banking, Auto Stocks Shine While IT Lags Behind

On September 23, 2024, Indian markets saw a surge, with both the Sensex and Nifty reaching record highs in early trade. The rally was fueled by a wave of optimism following the Federal Reserve's rate cut last week, sparking a positive sentiment among investors. This reduction in interest rates has reignited a "risk-on" approach in the markets, driving investments in riskier assets such as equities.

Key Indices Movement:

• The Sensex rose by 384.30 points, or 0.45%, closing at 84,928.61.
• The Nifty 50 climbed 148.05 points, or 0.57%, to end at 25,939.00.

The market breadth was positive, with 2,273 shares advancing, 1,661 shares declining, and 119 shares remaining unchanged. The upward momentum was primarily driven by gains in banking, energy, and auto stocks, while the IT sector lagged behind.

Key Movers on September 23:

1. Indus Towers:
   CMP: ₹402 | Gain: 4%
   Shares of Indus Towers surged by 4% after CITI issued a 'Buy' recommendation on the stock with a target price of ₹500 per share. Although the Supreme Court's dismissal of the AGR petition was a headline, it was not expected to impact Vodafone Idea's cash flows immediately. However, the long-term sentiment surrounding the stock might be influenced by Vodafone Idea's future performance.

2. Adani Total Gas:
   CMP: ₹829 | Gain: 5%
   The stock jumped by over 5% after Adani Total Gas secured a $375 million financing package from global lenders. This marks the largest-ever global funding initiative in the City Gas Distribution (CGD) sector. The joint venture between the Adani Group and TotalEnergies of France secured these funds to boost its CGD business in India.

3. SpiceJet:
   CMP: ₹70 | Gain: 5%
   Shares of SpiceJet soared over 5% after the airline raised ₹3,000 crore through the issuance of shares to Qualified Institutional Buyers (QIBs). The capital infusion provided a much-needed financial boost to the struggling low-cost airline.

4. Hind Rectifiers:
   CMP: ₹856 | Gain: 5%
   Hind Rectifiers hit the upper circuit with a 5% rise after securing a ₹200 crore supply order from Indian Railways. This contract is set to be executed by FY26, driving long-term growth for the company.

5. Fusion Micro Finance:
   CMP: ₹275 | Loss: 10%
   The stock of Fusion Micro Finance plummeted over 10% after Investec downgraded its rating to 'Sell' from 'Hold'. The downgrade was attributed to the company's increased provisioning for Estimated Credit Loss (ECL) for Q2 of FY25 compared to the first quarter, indicating a more conservative outlook on potential defaults.

6. Aarti Drugs:
   CMP: ₹526 | Gain: 1%
   Aarti Drugs saw a modest gain of 1%, despite the US FDA issuing Form 483 with seven observations for its API manufacturing facility in Tarapur, Maharashtra. None of the observations were related to data integrity, which reassured investors to some extent.

7. Glenmark Pharma:
   CMP: ₹1,705 | Gain: 5%
   Glenmark Pharma shares jumped 5% after its Aurangabad manufacturing facility cleared a routine US FDA inspection without any observations, a significant achievement in maintaining quality standards.

8. Vodafone Idea:
   CMP: ₹11 | Gain: 4%
   Vodafone Idea shares gained 4% after the telecom operator signed a $3.6 billion (₹30,000 crore) deal with Nokia, Ericsson, and Samsung to supply network equipment over the next three years. This strategic partnership is expected to boost its 5G rollout across India.

9. Skipper:
   CMP: ₹478 | Gain: 15%
   Shares of Skipper surged 15% after Axis Securities initiated coverage with a 'Buy' rating and set a price target of ₹600 per share. The domestic brokerage sees 44% upside potential due to robust growth prospects in the company.

10. Nifty IT:
    Loss: 0.5%
    The Nifty IT sector was the only sectoral index in the red, falling by 0.5%. Major IT companies like Infosys, Tech Mahindra, and TCS dragged the index down. After substantial gains in previous months (12% in June, 13% in July, and 5% in August), the sector has been undergoing profit booking in September, resulting in a cumulative 2% decline so far this month.

Conclusion:
The stock market on September 23 saw a strong uptrend driven by sectors like banking, energy, and auto. However, IT stocks underperformed amid profit booking. Key movers like Indus Towers, Adani Total Gas, and SpiceJet led the gainers' list, while Fusion Micro Finance experienced a sharp decline due to a downgrade by Investec. The market sentiment remains buoyed by macroeconomic factors like the Federal Reserve's rate cut, which has strengthened investor optimism.

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Demat Accounts Surge: Over 42 Lakh Additions in June, Total Exceeds 16 Crore

In June 2024, India witnessed a significant surge in the opening of demat accounts, with over 42.4 lakh new accounts added. This represents the highest growth rate since February 2024, surpassing the previous month's addition of 36 lakh and significantly higher than the 23.6 lakh accounts opened in the same month last year. This marks the fourth time in recent months that new demat account additions have crossed the 40 lakh mark, a milestone previously achieved in December 2023, January 2024, and February 2024.

With these new additions, the total number of demat accounts now stands at over 16.2 crore, reflecting a 4.24% increase from the previous month and a 34.66% rise compared to last year. This sharp rise in account openings is attributed to a stable market, bolstered by strong foreign investor activity and a growing sense of confidence in the newly formed government.

Market analysts suggest that the current bullish sentiment in Indian equities, characterized by continued foreign investments and strong returns, has played a key role in driving the surge in demat accounts. The lack of market corrections has further fueled investor interest, as many new participants fear missing out on profitable opportunities. Additionally, ongoing IPOs, many of which have been heavily subscribed and are listing at premiums, have drawn fresh interest from retail investors.

As tax-filing season approaches, more individuals are looking to diversify their investments into equity markets, with the hope of increasing returns and reducing tax liabilities. Brokerages have also intensified their campaigns to promote financial inclusion, encouraging more people to enter the markets. According to Rajesh Palvia, an analyst at Axis Securities, the Nifty index is expected to reach 25,000 by the Budget period, with a year-end target of 28,000, further fueling optimism.

However, analysts caution that not all of the new accounts represent entirely new investors. Some are individuals shifting between brokers or opening multiple accounts to take advantage of different offers. A portion of the accounts could also be duplicates. Despite this, the momentum shows no signs of slowing down, and as long as markets perform well, the pace of demat account openings is expected to continue rising.

Deepak Jasani, an analyst at HDFC Securities, points out that the surge in demat accounts is a reflection of the broader market trend, with both retail and institutional investors showing increasing confidence in India's equity markets. As market sentiment remains positive, the influx of new accounts is likely to continue throughout the year.

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Markets Await Powell's Decision: Will He Follow Greenspan's Playbook to Avoid Recession?

With bonds and stocks rallying ahead of a crucial Federal Reserve meeting, traders are drawing parallels to the 1995 era when Alan Greenspan successfully navigated a soft landing for the U.S. economy. The focus now is on whether Fed Chair Jerome Powell will opt for a 25 or 50 basis point rate cut, and how it will impact the economy.

Historical data shows that during past Fed easing cycles, including the six analyzed since 1989, the S&P 500 Index, Treasuries, and gold typically rise when the Fed begins to lower rates. Traders are looking back at 1995 for guidance, a year when the Fed managed to reduce rates without triggering an economic downturn.

Kristina Hooper, Chief Global Market Strategist at Invesco, believes the U.S. economy is on track to dodge a recession with the Fed's anticipated policy shift. "Once the Fed starts cutting rates, there will be a positive psychological effect that will support the market," she said.

The S&P 500 Index has historically gained an average of 13% in the six months following the first rate cut, except during the recessionary years of 2001 and 2007. Additionally, short-term Treasuries have usually outperformed long-term notes during these cycles, leading to a steeper yield curve. Gold has also delivered returns in four of the past six easing cycles, while the performance of the dollar and oil has been mixed.

As the Fed prepares to implement rate cuts, uncertainty looms with the upcoming presidential election. Candidates have starkly different economic policies, which could significantly affect global markets based on election outcomes and Congressional votes.

Salman Ahmed, Global Head of Macro and Strategic Asset Allocation at Fidelity International, has downgraded his rating of U.S. equities to neutral from overweight due to election risks. "The most likely scenario is a soft landing, but elections could introduce unique challenges," he noted.

In the 1995 easing cycle, Greenspan and the Fed managed to lower rates from 6% to 5.25% within six months, cooling the economy without causing a downturn. This time, with the Fed's target range at 5.25% to 5.5% for 14 months, bond traders are pricing in over 2 percentage points of easing over the next year. The S&P 500 is nearing an all-time high, and credit spreads are at historical lows.

Investor optimism for a soft landing is supported by strong corporate and household balance sheets, with record-high corporate profits and household wealth. "Inflation is no longer the primary concern; it's high interest rates," said Yung-Yu Ma, Chief Investment Officer at BMO Wealth Management. "By cutting rates now, the Fed may address this issue and prevent a downturn."

Bloomberg strategists suggest that Treasury bonds typically rally at the onset of a Fed easing cycle, particularly when it coincides with a weakening economy. However, in a soft landing scenario, bond performance may lag behind stocks.

Recent data shows a rotation into utilities and real estate sectors, which historically benefit from rate cuts if economic growth remains robust.

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