Domestic equities ended the week about 1% lower, as elevated global bond yields and expectations of tighter US monetary policy weighed on investor sentiment and foreign flows. However, both the Sensex and the Nifty 50 recovered marginally on Friday, snapping a four-day losing streak, ending at 76,515.43 and 23,897.70, respectively.
The 10-year US Treasury yield rose above 4.8% this week amid expectations of higher US inflation and a rate hike at this month's Federal Open Market Committee meeting, triggering heavy foreign selling in the first half of the week. Elevated crude prices, around $95 per barrel, and continued tensions in West Asia added to the pressure.
Markets recovered on Friday after Fed governor Christopher Waller indicated he would support keeping interest rates unchanged at the next policy meeting. But the initial optimism faded as the Nifty succumbed to profit booking near the 24,000 mark, reflecting shaky investor confidence, according to experts.
That lack of confidence battered consumer-focused sectors this week, with automobiles, consumer durables and consumer discretionary being the top losers. Auto stocks bore the brunt of the selling as valuations across the sector seem to have moved ahead of fundamentals after a strong period of growth, said Ashwini Shami, smallcase and chief portfolio manager at OmniScience Capital. Investors remain concerned, even as passenger vehicle and two-wheeler sales rose 33% and 9% year-on-year in August, respectively, supported by premiumisation and rural recovery.
The weakness in discretionary and consumer durables was also driven by profit booking amid valuation concerns, said Pranay Aggarwal, director and CEO of Stoxkart. “These sectors have already enjoyed strong rallies, leaving room for disappointment,” he said.
Oil & gas and realty, meanwhile, emerged as the top gainers, albeit with modest gains of 0.8% and 0.2%, respectively. The rotation into these sectors could be tactical, since they offer limited long-term earnings visibility, noted Shami of OmniScience Capital.
Latin America wins
Globally, Brazil and Argentina outperformed major developed and emerging markets this week, as investors continue to diversify beyond the crowded AI trade in South Korea and Taiwan. Attractive local interest rates continued to draw international capital, while structural liberalisation and demand for real-economy resources amid a global commodities boom supported these commodity-rich economies, noted experts.
Low valuations also aided the region's performance, said Shami. But that valuation comfort may be partly optical, since these markets are heavily dependent on energy and financial sectors and have a relatively constrained growth outlook for their economies, he cautioned.
Gold turns volatile
Gold prices fell nearly 3% from last week's level after touching a three-month high about 10 days ago, as investors reassessed the health of the US economy and the trajectory of Federal Reserve policy. The precious metal had a tumultuous week as shifting rate expectations drove volatility. Higher interest rates make non-yielding assets, including gold, unattractive.
At current levels, investors are unlikely to remain unambiguously bullish on gold, but its safe-haven appeal should keep prices volatile as markets weigh economic and geopolitical risks, said Shami.
Interest rate, IPO watch
Next week, markets will closely track US manufacturing activity, employment data and Fed communication. Any sharp change in US rate expectations could trigger a shift in foreign investor flows and increase market volatility, said Aggarwal of Stoxkart.
Domestically, a steady initial public offering (IPO) pipeline is also absorbing liquidity, particularly from institutions and high-net-worth investors, exerting pressure on secondary-market returns, he added. Eleven mainboard IPOs are scheduled to open next week, targeting more than ₹7,000 crore in aggregate, according to a Motilal Oswal Financial Services note.
“A meaningful fall in crude prices could offer some relief,” said Aggarwal. “But the bigger question is whether secondary-market earnings can sustain current valuations amid continuous equity supply.”