Sensex Ends 8-Week Slump: Experts Question Sustainability of Gains

Sensex Rebounds After Eight Weeks of Declines: Analysts Skeptical About Longevity

The Sensex’s recent rally raises questions about its sustainability amid ongoing economic challenges.

A Strong Intraday Turnaround

On Friday, the Sensex surged by 1,076 points, or 1.15%, reaching an intraday high of 72,669 before closing at 72,472, up 879 points or 1.23%. This marked a notable recovery from the previous week’s lows, with the index gaining 0.8% over the week. The Nifty 50 also followed suit, closing 0.4% higher for the week after a 1.30% increase on Friday, settling at 22,520.

Market analysts attribute this rebound to a combination of factors, including a temporary easing of geopolitical tensions and a modest pullback in crude oil prices. However, the broader market environment remains fraught with challenges, including high bond yields and foreign institutional investor (FII) sell-offs.

Geopolitical and Economic Headwinds

Arun Kejriwal, founder of Kejriwal Research and Investment, pointed out that the market’s movements reflect investor frustration with the geopolitical landscape, particularly with the upcoming mid-term elections in the U.S. He noted that uncertainty surrounding potential U.S. foreign policy actions could weigh heavily on market sentiment.

Despite the rally, Kejriwal cautioned that the underlying issues remain unresolved. He highlighted that while IT stocks led the rally, the sector continues to face challenges due to H-1B visa restrictions, which may hinder its growth potential.

High Bond Yields and FII Trends

VK Vijayakumar from Geojit Financial Services expressed concerns regarding the sustainability of the recent gains, attributing them to high U.S. bond yields. With the 10-year Treasury yield hovering around 5.24% to 5.25%, the potential for continued FII selling looms large. This year alone, FIIs have offloaded ₹2.91 trillion worth of stocks, marking the highest sell-off on record.

As a result, the Sensex is down approximately 15% year-to-date, while the Nifty has fallen by 14%. Analysts warn that the current pullback may be a temporary “dead-cat bounce,” with the potential for further declines if economic conditions do not improve.

Valuation Considerations

Despite the bearish outlook, some analysts see value in the current market conditions. According to DSP Mutual Fund, Nifty 50 valuations have corrected to more attractive levels, with a trailing P/E ratio of 19.26x compared to a historical median of 20.9x. This suggests that select large-cap stocks may present buying opportunities.

Furthermore, Indian equities are currently underperforming relative to emerging markets, which could make them an appealing option for investors looking to allocate capital selectively to high-quality names.

Key Highlights

• Sensex closed at 72,472, up 879 points or 1.23%, ending an eight-week losing streak.
• Nifty 50 gained 1.30% on Friday, closing at 22,520.
• High U.S. bond yields continue to pose a risk to market stability.
• FIIs have sold ₹2.91 trillion worth of stocks this year, the highest on record.
• Nifty 50 valuations are now at fair/cheap levels, presenting selective buying opportunities.

Investor Note: Investors should remain cautious as the market’s recent gains may not be sustainable amidst ongoing geopolitical tensions and high bond yields. Selective investment in undervalued large-cap stocks could present opportunities, but vigilance is essential given the current economic landscape.