HDFC Bank, ICICI Bank allow markets take a breather as investors seek value; Sensex surges 694 points

Domestic markets rebounded from their four-month lows as investors engaged in value buying, considering the recent losses to be excessive.

Financial stocks, deemed attractively valued, led the market gains, with metal stocks also among the top performers due to optimism about China.

The S&P BSE Sensex closed at 79,477, up by 694 points or 0.8%. The National Stock Exchange Nifty ended at 24,213, gaining 218 points or 0.9%. Both indices experienced their best single-day performance since September 20. Overall, 2,468 stocks advanced while 1,478 declined. The Nifty Midcap 100 rose by 0.6%, and the Nifty Smallcap 100 increased by 0.4%.

Key Contributors to Sensex Gains

HDFC Bank and ICICI Bank were the major contributors, rising by 2.6% and 1.5%, respectively. Investors favored banking stocks due to attractive valuations ahead of significant events such as the US presidential election and the Federal Reserve’s monetary policy announcement this week.

The Nifty Bank index, which tracks banking stocks, is trading at a trailing 12-month price-to-earnings ratio of 13.7x, compared to its five-year average of 23.9x.

Metal Stocks Benefit from China Optimism

Metal stocks like Tata Steel and JSW Steel gained on hopes of a demand recovery in China, following Premier Li Qiang's confidence in achieving a 5% economic growth target for the country.

Market Sentiment

The domestic markets have declined nearly 8% from their peak, affected by slowing corporate earnings and continuous selling by foreign portfolio investors (FPIs).

“With two-thirds of Nifty 50 companies missing their earnings estimates in the second quarter, Nifty 50 earnings for 2024-25 have been revised down to less than 10% from the previous consensus of 15%. Given this earnings downgrade, sustaining current valuations is challenging, which explains the persistent FPI selling,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Global Influences and Investor Caution

As Vice President Kamala Harris and former President Donald Trump compete closely in the US elections, the outcome of the US monetary policy is causing investor anxiety. A disputed result could delay the vote count, increasing volatility. Investors are cautious due to the candidates' vastly different policy programs.

“Nerves surrounding the US presidential election outcome persist, potentially leading to significant global policy shifts. The market’s recovery in the final hour was driven by short covering ahead of the US election results, following a sharp fall on Monday. We expect markets to remain volatile due to global factors, with stock-specific action as index heavyweights announce quarterly results in the coming days," said Siddhartha Khemka, Head of Research and Wealth Management at Motilal Oswal Financial Services.

Outlook

Besides the US elections and the Fed announcement, corporate earnings and China’s stimulus announcement will impact market direction.

“Investors might adopt a cautious strategy, staying invested and accumulating stocks in sectors resilient to volatility. Leading financials and automotive stocks are showing earnings momentum and promising prospects,” added Vijayakumar.

FPIs remained net sellers, offloading shares worth Rs 2,569 crore, while domestic institutions bought shares worth Rs 3,031 crore.