Analyst Call Tracker | BFSI stocks steal the spotlight, IT tumbles out of favour in September

Wipro, Tech Mahindra, HCL Technologies and LTIMindtree comprise a large portion of the pessimism list.

The Federal Reserve surprised the global markets with a 50 basis point cut in the interest rates on September 18. The Governor Jerome Powell painted a dream picture, suggesting the Goldilocks scenario might fruitify, with steady growth, low unemployment, and little inflation. Forget a soft landing, some even say the US economy might see no landing.

And oh boy, did this kick off a rally. In five trading sessions, from September 19 to September 26, the Nifty 50 catapulted 800 points or three percent, to finally breach the 26,000-mark.

Expectations of a rate cut were already doing the rounds, which had caused the key banking index Nifty Bank to soar almost 8 percent from September 6 to September 26. However, there came China and wiped off a lot of the gains.

The dovish tones coming in from the mother market, has now led to domestic market participants believing that the Reserve Bank of India will pencil in a cut in the repo rate during its December meeting.

Stable asset quality, rising geopolitical uncertainties, and expectations of a dovish central bank burnished the appeal for banking, financial services and insurance firms. BFSI names emerged as the Street's darlings for the month of September, making up half the optimism list in  Moneycontrol's Analyst Call Tracker for the month of September.

Rain, rain come again?

Heavy rains lashed the country, with the monsoon season bringing cumulative rainfall that exceeded the long-term average by 8 percent. In comparison, last year, the rainfall was 6 percent under the long-term average.

The positive rainfall, with greenshots such as moderation in CPI, which came in at 3.6 percent in September and populist announcements by state governments, augur well for a spike in rural demand.

Rural growth is expected to outpace urban growth. Companies with higher share of rural distribution, alongside those expanding their geographical footprints, are expected to outperform, noted Axis Securities.

Some notable additions to the list of optimism are ITC and Mahindra & Mahindra. The two counters have a high focus on the rural sector, deriving a large chunk of their revenues from Tier-3 and small towns.  Bajaj Finserv, with a strong rural b2c segment, along with tractor manufacturer Eicher Motors have seen a large number of upgrades over the past quarter.

Alternatively, for some companies, the rains have had a negative impact. “Heavy rains and floods in certain regions have disrupted the supply chain. They also affected out-of-home consumption and consumer offtake,” said Motilal Oswal.

Therefore, consumer discretionary firms or staples firms with a premiumisation thrust underperformed. We can see this in the rising bearishness on Asian Paints and Nestle India.

What’s the latest tech update?

The IT growth story continues to lag, with the ramp-up of large deals likely to be pushed to the second half of FY25, despite seeing a minor uptick in recovery. The weaker discretionary spending in the US on macroeconomic uncertainties and the upcoming elections have hit the domestic information services sector hard.

With the neck-to-neck fight seen on the US elections front, with former President Donald Trump and Vice President Kamala Harris battling it out for the head honcho job, most investors are in the wait-and-watch mode.

If elected, Harris is likely to continue the strong trade ties between the USA and India, with our services exports to remain intact. However, on the other hand, if elected, Trump said he would enact a reciprocal tax against India, since it is the 'biggest' import tariff charger. Moreover, apart from ties to India, the fate of the US economic situation hangs in the balance, until the election is complete.

The elections are causing discretionary deals for IT to be put on pause, at least until a clearer picture emerges, leading the bearishness in information technology stocks to continue. Wipro, Tech Mahindra, HCL Technologies and LTIMindtree comprise a large portion of the pessimism list.

Buy China, Sell India?

Everyone’s talking about the China revival story. The big monetary stimulus resparked buying interest in China, with emerging markets fund managers trimming their positions on India to enter cheaper Chinese stocks.

This added selling pressure on the domestic markets during the last week of September, however domestic institutional investors and retail participants filled in whatever gaps FIIs left behind, leading the Nifty 50 to end with 2.3 percent gains in September.

So what's next?

October has a slew of factors laid out for the markets to watch: from the ongoing earnings season to further stimulus updates coming out of China, from escalating geopolitical tensions to the expected spike demand during the festive season.

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