It’s the last day of the month, and what an action-packed day it has been. The Chinese markets are zooming like never before, while the Japanese market is experiencing a hard crack due to a change in leadership. The Indian market is also facing a significant downturn, with liquidity flows from foreign institutional investors (FIIs) appearing to exit as Chinese markets attract a lot of FII money right now. This influx comes just before the long holiday in China, prompting a rush for investors to enter stocks before the exchanges close for a week. In fact, volumes in the Chinese market have reportedly exceeded the 2008 volumes, with trillions of yuan traded. There seems to be a fear of missing out (FOMO) on the opportunity to invest in stocks again, as the markets have been stagnant for an extended period. Consequently, many short positions in China hedge funds have been wiped out, indicating a significant imbalance between buyers and sellers, with current buying overwhelming short positions.

Where is the market headed?

Market Overview

Now, turning to the Indian markets, the Nifty has experienced a sharp decline, down 1.4% today, having peaked at 26,250 and now sitting at 25,810. The rally that began in the second week of September, which saw the index rise from nearly 24,800 to 26,200, was impressive, but it’s natural for some pullbacks to occur after such a run. Fortunately, only large caps were significantly impacted

Nifty Next 50

Nifty Next 50 showing relatively minor damage of 0.92%

Nifty Mid and Small Cap

Mid caps saw hardly any damage, down just 0.2%, and small caps even recovered from earlier losses to close 0.06% higher. This indicates that the current moves in the market are primarily driven by FII activity, affecting large-cap Nifty names the most.

Nifty Bank Overview

The Bank Nifty has seen a failed breakout, down 1.59%, following an incredible rally of 4,500 points, of which a couple of thousand points have now been given up. The Bank Nifty’s inability to maintain support raises questions about where it will find its footing, potentially around the moving averages or the 51,800 mark.

Advanced Declined Ratio Trends

Despite the overall decline, market breadth wasn’t too bad, with an advance-decline ratio of 28 to 21. However, it’s worth noting that the FII selling numbers for September 30 are not yet available, but DIIs had shown strong buying on Friday, which may offset some of the selling pressure from FIIs.

Nifty Heatmap

In the heat map of market performance, most stocks are in the red, with Reliance Industries giving up 3.2%. Major banks like Axis Bank, State Bank, HDFC Bank, ICICI Bank, and tech giant Infosys are also down, alongside automotive giants like Mahindra & Mahindra, Maruti, and Bajaj Auto. The only sector showing some resilience is metals, with stocks like JSW Steel, Tata Steel, and Hindalco performing well, likely buoyed by the gains in the Chinese markets. Meanwhile, Nifty Next 50 stocks such as Zomato, Indigo, and DLF are losing ground significantly.

Sectoral Overview

On the topic of sectoral trends, no sectors were up today except for metals, driven by a huge jump in Chinese metal and commodity sectors. The expectations for rising commodity prices due to new stimulus in China suggest that while metals are thriving, sectors like autos and real estate may face challenges due to increased input costs.

Sectors of the Day

Nifty Metal Index

Today, metals reached new all-time highs, having underperformed previously, and are now reflecting robust gains.

Stock of the Day

Saregama

In stock highlights, Saregama has shown impressive growth, rising from ₹480 last month to ₹631 today, indicating a strong breakout and forming a flag pattern with support along its trend line.

Story of the Day

The SSE Composite index in China has surged dramatically over the last five sessions, increasing from approximately 2,700 to 3,300, marking a remarkable 24% gain. Such moves are noteworthy, especially for an index that has remained stagnant for so long. A similar hypothetical rise in the Nifty would see it leap from 27,000 to 33,000, though it’s important to remember that the Nifty has not been as dormant as the SSE over the years. The Hang Seng index has also risen 24% in 13 sessions, highlighting how indices that have languished for extended periods can experience rapid movements.

Historically, indices tend to move quickly once the upward trend begins, as there is little resistance to overcome. This surge creates a squeeze on short sellers who have benefited from shorting the Chinese stock market for an extended period. However, it’s essential to note that even after this rally, Chinese markets have only returned to levels seen in 2007, signifying a long-term stagnation.

In the context of China’s recent struggles, the real estate sector has been a significant issue, particularly after the collapse of Evergrande, which led to a widespread decline in the property market. Many Chinese households had their savings tied up in real estate, and the situation has pushed the government to implement aggressive stimulus measures, including cutting reserve requirements and mortgage rates. However, the question remains whether these measures will be sufficient to revive the economy without plunging further into recession.

For India, the situation in China will impact foreign fund flows in the short term, as hot money may flow into a market that is significantly undervalued compared to India. The rise in commodity prices might also adversely affect India’s manufacturing sector, and despite past opportunities, it appears India may have missed the bus in capitalizing on China’s downturn. Currently, India accounts for only 3% of global manufacturing compared to China’s 31%, indicating a long way to go in establishing itself as a manufacturing hub.

Overall, while the Indian market has seen some strong months, it’s crucial not to succumb to unbridled optimism. Investors should maintain a cautious approach and ensure their portfolios are equipped with risk management strategies and proper asset allocation, given the uncertainty in global markets. Today’s snapshot illustrates the complexities of the market, with Japan down 5%, China up 8%, and India in a state of flux.