Indian equities stage smart recovery; oil & gas and auto stocks lent support in a volatile session

Indian equities after a steep fall in early trade staged a smart recovery in the afternoon trade led by sharp gains in the energy, auto and pharma stocks. Meanwhile, Bank Nifty also pared some of its sharp losses led by support from private banking peers including HDFC Bank, Kotak Mahindra Bank, Federal Bank and PNB -among the PSU Banks.

Here are the reasons why the markets were down sharply in early trade and why the recovery now:

Global sentiment turned sour:

Tech-heavy Asian markets bore the brunt of overnight fall in the US markets, with the Japan’s Nikkei index down by a sharp nearly 3 per cent, while the Hong Kong’s Hang Seng was down over 1 per cent. 

Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said "Global cues have turned distinctly negative with a sharp 3.64% cut in Nasdaq, which is the worst cut in 2024. The tech stocks which have been driving the rally in the US are facing the brunt of selling due to worse-than-expected results and news."

Earnings and budget proposals continue to weigh on D-Street:

Kumar added that In India, too, the sentiments have turned a bit negative on the Budget proposals to raise the capital gains tax. More importantly, there are signs of deceleration in corporate earnings after the impressive 24 per cent growth in Nifty earnings in FY24. The excessive valuations in certain segments in the broader market are unlikely to sustain despite the irrational exuberance of retail investors.
 
The disconnect between earnings and market prices in the broader market has been driven by the sustained fund flows into these segments and irrationally enthusiastic retail buying. Market history tells us that irrational exuberance can last longer than seasoned experts think. But it is always better to err on the side of caution.

Buy on dips strategy has been working throughout this bull run. So investors can utilise the dips to buy fairly valued largecaps, recommended the expert.

Earnings and budget proposals continue to weigh on D-Street:

Kumar added that In India, too, the sentiments have turned a bit negative on the Budget proposals to raise the capital gains tax. More importantly, there are signs of deceleration in corporate earnings after the impressive 24 per cent growth in Nifty earnings in FY24. The excessive valuations in certain segments in the broader market are unlikely to sustain despite the irrational exuberance of retail investors.
 
The disconnect between earnings and market prices in the broader market has been driven by the sustained fund flows into these segments and irrationally enthusiastic retail buying. Market history tells us that irrational exuberance can last longer than seasoned experts think. But it is always better to err on the side of caution.

Buy on dips strategy has been working throughout this bull run. So investors can utilise the dips to buy fairly valued largecaps, recommended the expert.

Sectoral recovery seen in few packs

After an across-the-board selling, some of the sectors are showing resilience including auto, pharma and the energy pack -that saw gains extending to as much as 2 per cent at the last count. The gains in the oil and gas stocks are spurred after the Petroleum ministry said that no proposal has yet been received from the states to bring petroleum products under the ambit of GST.