Today, we saw portfolios not performing in line with the market. We’ll delve into this shortly. The main topic of discussion today is the rate cut narrative and why it might be a trap. Let’s discuss why one should not be fooled by the continuous talk of rate cuts and their rapidly changing nature, but that will come in the second half of the video.
Market Overview
The markets are surging ahead with full steam. Nifty climbed another 0.6%, marking the third consecutive day of gains, forming a “three soldiers” candlestick pattern. The market hit a new all-time high at 23,841, indicating no upward resistance. All-time highs suggest that there are no previous buyers stuck at higher prices, which could act as resistance.
Nifty Next 50
Nifty Junior had a slow day, down 0.18%, showing no significant movement. The broader market is not following Nifty’s lead, as indicated by a skewed advance-decline ratio favoring declines.
Nifty Mid and Small Cap
Mid caps declined slightly by 0.26%, and small caps were nearly flat with a slight 0.21% gain, forming a Doji candle. It seems as if life has been sucked out of the broader market, with only select front-end stocks in Nifty showing movement.
Nifty Bank Overview
Bank Nifty also performed well, up 0.5%, quickly moving from 46,000 to 53,000.
FIIS and DIIS
Foreign institutional investors (FIIs) bought ₹1,100 crores yesterday, while domestic institutional investors (DIIs) sold ₹149 crores. DIIs have bought only once in the last four sessions, indicating some exhaustion.
Nifty Heatmap
The heatmap showed bright greens in stocks like Reliance, Bharti Airtel, UltraTech Cement, and ICICI Bank. ICICI Bank has been gaining consistently, while HDFC Bank was resting today. Reliance surged 4%, driving the index. Bharti Airtel also performed well after winning new spectrum ranges, up 3%. However, Mahindra & Mahindra and Bajaj Auto declined by 2%, and JSW Steel also saw declines. IT and FMCG sectors remained relatively flat.
Nifty Next 50 had a worse day, with only Godrej Consumer Products and Varun Beverages managing gains. Stocks like Vedanta, Zomato, and Hindustan Aeronautics faced significant cuts. Public sector enterprises, power stocks, and some pharma stocks also declined.
Sectoral Overview
Sectorally, energy led with a 1.4% gain, followed by infrastructure at 1.3%. Real estate and metals lost ground, down 1.4% and 1.5% respectively. It was a mixed situation with nothing too exciting. The energy index, after four or five sessions, started to rise today but still trails behind the election high.
Nifty Energy Index
Stocks of the Day
Reliance
Reliance stood out today, recovering its losses since the election day high in a single session. If this momentum continues, Reliance alone could push Nifty beyond 24,000. The long-term chart for Reliance shows stabilization since February, and a breakout here could mean testing higher resistance levels.
Gold Chart
Gold prices have weakened slightly below the moving average but remain flat overall. Despite positive news for India’s current account, the USD-INR is slipping, stabilizing gold at the current rate.
Story of the Day
Let’s discuss the rate cut narrative. Since the beginning of 2024, we have heard forecasts of seven rate cuts by the Fed, which gradually reduced to five, then three, two, and now possibly none. This rapidly changing narrative shows how unreliable these forecasts can be.
Looking at the past, there is no one-to-one relationship between rate cuts/hikes and market performance. For instance, during 2017-18, despite several rate hikes, the S&P 500 continued to rise until the market expected no further hikes. When the market cracked, it was not until the second or third rate cut that any significant continuation of the rise was observed.
Expectations often do not match reality. For example, in 2008, the expectation was for rates to rise within two years, but it took seven years. Similarly, recent forecasts have continuously pushed forward expectations of rate stabilization.
The market tends to run ahead of these events. For example, despite India’s inflation falling from 6% to 3%, the repo rate remains at 6.5%. If you base your decisions on waiting for rate cuts, you may miss out on market movements that have already priced in those expectations.
The principle to follow is “Bhav Bhagwan Che” – the market price is supreme. Follow the market’s price action rather than relying on forecasts about interest rates, inflation, or other macroeconomic indicators. Price action is the ultimate truth in the market.
