Where is the market headed?

It was another relatively dull day in the markets. The Nifty hovered just above the 25,000 mark, while mid and small caps dipped slightly before recovering a bit. Overall, there wasn’t much significant action. Public sector banking, Real Estate, and a few other sectors faced losses, though there was some recovery in defence stocks. These minor moves reflect a market that appears to be waiting for a strong trigger.

Results continue to be tricky to interpret. For instance, despite Eternal’s results being labelled poor by several fundamental analysts, the stock surged unexpectedly. On the other hand, some companies reported strong results, but their stocks declined. This reinforces the idea that short-term price movements should not be directly equated with quarterly results. Much of the data might already be priced in, or the market could be looking ahead and discounting different expectations for upcoming quarters.

Market Overview

Once again, the last seven sessions have gone virtually nowhere. After the drop seen in mid-July, the market has spent the past several sessions simply drifting around the 25,000 mark without any meaningful direction. Today’s close at 25,060 marks a modest decline of 0.12%, continuing the sideways movement we’ve been witnessing.

Nifty Next 50

Nifty Junior closed down by 0.36%. However, the index remains at the same level it was two days ago, highlighting the lack of clear movement or direction within this segment.

Nifty Mid and Small Cap

Mid caps gave up yesterday’s gains and returned to Friday’s close levels, indicating no major move, though they ended the day down by around 0.5%.

Small caps also declined, closing 0.34% lower. However, small caps remain just about 1% to 2% below their recent highs, showing relative strength despite the dip.

Bank Nifty

Nifty Bank slipped 0.35% after posting a strong performance the previous day, reflecting some mild profit booking or consolidation in the banking space.

GOLD

Gold remained largely flat, slipping just 0.14% for the day. The current level stands at ₹9961 per gram, which is very close to its all-time high.

Advance Decline Ratio

As soon as the market opened, advances began to decline while the number of declining stocks started to rise. By around 10:30 or 11:00 AM, the advance-to-decline ratio had settled at 177 to 321 and remained largely flat for the rest of the session.

Heat Maps

A significant number of Nifty stocks were in the red. Reliance was down for the second day in a row, having lost 3.5% yesterday post-results. Jio Finance, Sriram Finance, and SBI were down 1%, while Bajaj Finserv also declined. In the IT pack, Infosys and HCL Tech were down. Tata Motors lost 2%, and Bajaj Auto and Eicher Motors were also down. On the other hand, Mahindra and Mahindra was up.

Defensive stocks like ITC, Nestle, Adani Ports, L&T, and Adani Enterprises were also among the losers. The only standout gainer was Eternal, which rose 10% despite not-so-great numbers.

In the Nifty Next 50 space, Swiggy performed well, possibly because of Zomato‘s strong results. PAYTM also posted good results, leading to renewed investor interest in newer-age companies. Naukri gained 4.2% as a result. Shriram Cement, Havells, Indigo, Jindal Steel, Ambuja Cement, and IOC were also up.

On the downside, PSU banks faced losses: Canara Bank, PNB, BOB, and BNB were all in the red. IRFC, Vedanta, United Spirits, Adani Green, and Trent were also among the losers.

Sectoral Overview

Media stocks led the decline, falling 2.2%, followed by PSU banks down 1.5%, and real estate stocks slipping 1%, largely due to weak numbers from several counters, including Oberoi Realty. Pharma stocks also dropped 1%, while Auto stocks were down 0.74%. Even strong, previously resilient sectors like Infrastructure saw a dip of 0.6%.

On the positive side, the only notable gainer was the Consumption sector, which rose 0.46%.

Sector of the Day

Nifty Media Index

Media stocks including Zee Entertainment, PVR, Saregama, Hathway, and Network18 were among the key names that dragged the sector down for the day.

Story of the Day: Are Indian Markets Aligned with Economic Reality?

Twelve key ratios help assess the health and alignment of the Indian stock market relative to the broader economy. The CNX 500, representing the top 500 listed stocks on NSE, forms a useful proxy for this analysis. Though designed to reflect large, mid, and small caps, around 80% of the index is weighted toward large caps. Over the last 25 years, this index has compounded at an annual rate of roughly 13%, with significant bull runs from 2002–2008, 2009–2019, and again from 2020 onward.

One way to evaluate performance is to compare the CNX 500 in INR with its dollar-denominated version. While the rupee-based index is up around 2,800% over 25 years, its dollar counterpart has risen only about 1,368%. The divergence, especially after 2012, shows how rupee depreciation inflated domestic returns, masking underperformance in global terms. When compared to the S&P 500, the CNX 500 has failed to outperform over the past 15 years. While India’s economy is growing at a nominal rate of 10%, its markets are lagging the US, which has much slower GDP growth but significantly stronger market performance. This disconnect questions the narrative that Indian markets are consistently outperforming.

A similar picture emerges when comparing CNX 500 to the Nasdaq. Though it’s understandable given the tech-heavy, innovation-driven nature of Nasdaq, the 17-year underperformance remains noteworthy. This underlines the need for investors to consider global diversification, especially into US equities. Another important ratio is that of CNX 500 to India’s forex reserves. A rising ratio indicates the market is growing faster than reserves, which may suggest INR vulnerability and higher risk of capital flight. Between 2000 and 2007, reserves grew rapidly, but in the last decade, market cap has outpaced reserve growth, suggesting reduced dependency on foreign inflows.

Comparing CNX 500 to gold reveals investor sentiment. Equities outperforming gold signals confidence and risk-on sentiment, while the reverse suggests fear or uncertainty. The ratio fluctuates in a stable range, typically between 1.5 and 3.5. Historically, strong equity phases in 2002–2008 and 2014–2018 saw this ratio rise, while it fell during periods of crisis such as the 2008 GFC and the 2020 COVID shock. Recently, despite market highs, gold has risen sharply, leading to a falling ratio once again.

The ratio of CNX 500 to total external debt suggests how markets are performing relative to India’s liabilities. A falling ratio would indicate growing debt and potential macroeconomic vulnerability. At present, the market cap is rising much faster than external debt, which could either point to market over-optimism or set the stage for a mean-reverting correction. The CNX 500 to money supply ratio also indicates liquidity conditions. A stable ratio here implies equilibrium, and historically it has remained range-bound without suggesting any overheating.

In comparing CNX 500 to imports, the rising ratio indicates markets growing faster than the country’s import bill, possibly reflecting a healthier trade balance. Over the last 15 years, markets have consistently outpaced imports. On the export front, a rising ratio suggests a domestically driven rally as markets grow without relying heavily on export performance. This again aligns with the recent trend, though it raises questions about India’s long-term export competitiveness.

Government spending offers another lens. If markets grow faster than government expenditure, it implies greater private sector confidence and less reliance on stimulus. The current data shows markets outpacing public spending, although this signal is not as pronounced. However, one ratio that stands out starkly is electricity generation. The CNX 500 has dramatically outpaced growth in electricity output, creating a wide disconnect between market optimism and real economic activity. This ratio seems clearly overextended, either suggesting markets are overestimating future growth or that an adjustment may be on the horizon.

Finally, the CNX 500 to foreign direct investment (FDI) ratio has flattened after a period of sharp growth. While FDI flowed strongly in the early 2000s, it has slowed considerably in the past decade. Meanwhile, the market has continued to rise, pointing to growing domestic investor dominance or a mismatch between real and financial economic trajectories.

Taken together, these ratios raise important questions about whether Indian markets are moving in sync with broader economic fundamentals or in a parallel universe. While some metrics remain within historical ranges, others—such as the comparison with electricity generation or global indices like the S&P 500 indicate stretched valuations or significant underperformance. These insights can help folks understand the broader market relative to various parameters to try and draw some narratives based on that.