It’s a counter-rally, not a trend reversal: Rohit Srivastava

IT’s rally can be attributed to global market trends, which have been holding up. IT may outperform in the short term, especially if Nifty consolidates around 24,500 to 25,000 for a couple of weeks. However, broader market trends—like the 5-wave decline seen in indices like FMCG, Oil & Gas, Auto, and Nifty 500—suggest that the overall market won’t go very far.

What’s your broader market outlook for the next year?

This is likely the first phase of a 12-month consolidation or bear market. We’ll see sharp falls, quick bounces, and zigzag movements without making new highs. The depth of the fall will determine whether it’s a bear market or prolonged consolidation.

Fundamentally, what factors are influencing this setup?

Earnings growth has decelerated significantly—from 30% a year ago to single digits this quarter. Additionally, the RBI hasn’t cut rates to stimulate demand, and government spending has slowed its pace of expansion. This delay in rate cuts means demand recovery will take longer, potentially deepening the slowdown.

And the global factors?

Globally, the US dollar index is rising, driven by tariff fears and uncertainties in US policies. US bond yields have stabilised, but the equity markets haven’t fully reacted to inflationary pressures or the potential impact of tariffs. There’s also a lead-lag effect: If we look back to 2007, for example, the US topped out in October, India peaked in January, and Europe and Australia held on until May or June because commodity prices—especially oil—were still rising. We’re seeing something similar now: India seems to have peaked earlier, while the US hasn’t yet, or it may have just peaked.

We’ll know more with time, but it’s still holding above key levels like the 40-day moving average. Once it breaks that, it will confirm that the US is rolling over with the rest of the world.

So, the trade that is going on now – buy US equities, sell everything else will also be challenged?

Yes, this trade is kind of illogical, driven by expectations of rate cuts by the Fed and tax reductions. However, this overlooks the inflationary impact of tariffs and other measures, which are reflected in the bond market but haven’t yet caused a significant reaction in US equities.

But why haven’t US equities reacted yet?

It might take some time. Earnings growth in the US had slowed earlier this year but has picked up somewhat in the second half. GDP growth is still holding at around 2%, which is helping keep the mood positive. However, if we look at the inverted yield curve, which has been steepening, it has been signalling a potential recession for months. Despite that, liquidity and data are still supporting the US market more than other parts of the world.

Do you think this divergence in market performance will continue?

It's possible. The US market still has a degree of resilience due to solid earnings and GDP growth, but the pressures from the yield curve, tariffs, and global conditions could eventually catch up. It's a waiting game to see how long this divergence lasts before the US also experiences a rollover like other markets.