Portfolios of retail investors were the worst hit as PSU stocks like HAL, RailTel, BEML, OIL, BEL, Cochin Shipyard, and NBCC, besides smallcap multibaggers fell up to 6%. Vodafone Idea shares, another retail favourite, crashed up to 20% amid negative newsflow coming from the Supreme Court on its AGR dues.
The market capitalization of all BSE-listed stocks also fell by over Rs 3 lakh crore as a result.
On the other hand, Sensex rallied over 700 points during the day before paring some of the gains. Laggards like HDFC Bank, Kotak Mahindra Bank saw some buying interest.
The market movement during the day is part of an ongoing shift from value to quality as sectors and styles keep rotating. The Fed meeting outcome may have accelerated the shift as valuation-conscious FIIs are more likely to be biased towards largecaps.
After a strong catch-up by midcaps and smallcaps in the last couple of months, the margin of safety in the broader market in terms of valuations has reduced compared to largecaps.Also read | What Fed’s jumbo rate cut of 50 bps means for stock market investors in India“Keeping this in view, the broader market may see some time correction in certain pockets in the near term, and flows will likely shift to largecaps. Two themes – ‘Growth at a Reasonable Price’ and ‘Quality’ – look attractive at the current juncture. Based on these developments, some market positioning is continuing to shift towards defensive names from the domestic cyclical in the near term,” said Neeraj Chadawar, Head of Fundamental and Quantitative Research at Axis Securities.
He is of the opinion that largecap private banks, telecom, consumption, IT, and pharma provide more margin of safety in the near term.
Interest rate cuts lower borrowing costs, benefiting growth sectors like technology which may see higher valuations.
“For global investors, especially in emerging markets like India, cheaper financing could boost investment flows, particularly from Foreign Institutional Investors (FIIs). Optimism should increase as the economic outlook strengthens, with potential market adjustments expected after U.S. election results. However, investors should remain cautious about inflation and broader market conditions,” said Dr. Vikas V. Gupta, CEO & Chief Investment Strategist, OmniScience Capital.
On the technical scale as well, midcap and smallcap indices are currently showing an exhaustion formation, which calls for caution in high beta names, Nuvama said.
“We are cautious on midcaps as the easy bull phase is coming to an end and expect more stock-specific action going forward from this sector. There are early signs that the broader markets are experiencing a lack of momentum and decline in breadth reading across the board after a strong rally,” Nuvama’s Manav Chopra said.
The market mood is also turning favourable for rate-sensitives, particularly banking.
“The rate cuts by the Fed will pave the way for rate cuts in India, too. CPI inflation coming below the RBI’s target of 4% during the last 2 months will facilitate rate cuts. Two rate cuts of 25 bps each are possible in India before March 2025,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
