Amid the heightened volatility in the Indian stock markets, a report by SBI funds highlighted that the focus of markets will move towards the companies with good fundamentals and strong business models.
The stock markets globally facing volatility before the US Fed rate cuts and after the US job openings and labour turnover survey (JOLTS) report showed the lowest level of Job openings since 2021.
“We remain of the view that increasingly the market will become more discerning and move back towards companies which have strong business models, long-term earnings growth visibility, and sustainable cash flows,” stated the report.
In August, Indian equities continued their upward trend, reaching new highs despite a turbulent start to the month in global markets. The report noted that the initial sell-off was driven by a combination of factors, including weakening economic data from the US, which reignited recession fears. While the US Federal Reserve had hinted at possible rate cuts, any monetary easing would only impact the economy after a delay.
The report also added that Japan's central bank surprised markets by raising interest rates to 0.25 per cent, ending its era of zero interest rates. This unexpected move caused the Japanese yen to strengthen against the US dollar. The shift in Japan's monetary policy worried markets, especially as it could reverse the yen carry trade.
While markets have stabilised in recent weeks, the report stated that the situation remains uncertain, with the yen holding its gains and US bond yields maintaining their declines.
"The calm of the past couple of weeks has allowed equities to claw back their losses, dust has not settled yet as JPY continues to hold on to recent gains," the report added.
However, in August Indian markets rebounded as well, with the Nifty and Sensex rising by 1.1 per cent and 0.8 per cent, respectively. Midcap and small-cap indices also saw gains. However, the report noted a shift in the underlying market dynamics.
The report highlighted that the quality stocks, particularly in defensive sectors like Consumer, Tech, and Healthcare, are now outperforming cyclical sectors such as Capital Goods, Real Estate, and PSUs.
Amid global uncertainties and expensive Indian equity valuations, there is growing caution. While earnings remain solid in the medium term, the report stated that the near-term growth is slowing due to weaker commodity prices and sluggish revenue growth. This environment could lead to reduced speculative activity in equity markets. (ANI)
