Recent market corrections create entry point opportunities

Indian equity markets endured a turbulent last week, marked by sustained selling pressure and heightened global uncertainty, with benchmark indices posting their sharpest weekly decline in over a month.

The Nifty dropped 2.7% for the week, while the Sensex logged its sixth straight session of losses, reflecting a broad-based risk-off sentiment.  Mid- and small-cap indices mirrored the weakness, falling 2% and 2.1% respectively.

• US Tariffs on Pharma: The U.S. administration’s move to impose a steep 100% tariff on branded and patented pharmaceutical imports effective October 1 weighed heavily on Indian pharma stocks, sparking a sector-wide selloff.
• IT Sector Pressures: Renewed concerns on proposed hikes in H-1B visa fees added to the drag on IT counters, stoking fears of margin compression for India’s top IT exporters.
• FPI Flows: Foreign portfolio investors offloaded stocks worth nearly Rs 19,570 crore during the week, marking one of the heaviest bouts of weekly selling this quarter.
• DII Counterbalance: Domestic institutional investors stepped in with inflows of about Rs 17,410 crore, cushioning some of the downside but failing to fully offset FPI pressure.

All sectors ended in the red:

• IT: -7.9% (worst performer)
• Realty: -6.1%
• Pharma: -5.2%
• Consumer Durables & Capital Markets: ~-5% each

Broad-based carnage signalled caution turning into capitulation, particularly in frontline sectors exposed to global economic and policy shifts.

US Market Movement– Data-Driven Volatility in U.S. Markets

The U.S. equity market delivered a mixed but generally constructive performance this week, as investors weighed economic signals against evolving Federal Reserve policy expectations.

Major indexes started strong, setting fresh record highs on optimism around corporate earnings and potential rate cuts. However, midweek volatility emerged after conflicting data: an unexpected drop in jobless claims underscored continued labour market strength, while a sharp upward revision in GDP growth raised concerns the Fed may slow its easing pace.

At the same time, a still-moderate inflation backdrop kept alive hopes for further rate cuts later this year.

By week’s end, investors adopted a more cautious stance, sending the Dow Jones slightly negative, the S&P 500 down 0.3%, and the Nasdaq 0.7% lower.

Most stocks at NSE (~65.8%) are trading 20% or more below their 52-week high levels, indicating general market weakness and a widespread correction from recent peaks.

Market Outlook – Market Correction Creates Entry Opportunity for Patient Investors

The upcoming July-September earnings cycle is positioned for significantly stronger performance, supported by softer commodity prices, easing inflation, sustained banking sector strength with healthy loan growth, and resilient demand in auto and capital goods sectors.

This earnings recovery, combined with India’s robust GDP growth projection of 6.5-6.7% for FY 2025-26 and its status as the fastest-growing major economy globally, creates a compelling backdrop for potential market re-ratings driven by improved macro stability, festive season demand, and pre-election government spending.

India’s economic outlook is strengthened by significant policy reforms, with RBI cutting the Cash Reserve Ratio from 4% to 3% and reducing repo rates by 100 basis points to 5.50%, injecting ₹2.5-2.7 trillion into the banking system.

Budget 2025 provided substantial tax relief by raising income tax exemption limits and increasing slab threshold, benefiting middle-class taxpayers significantly.

GST reforms have simplified tax slabs to 0%, 5%, and 18% (plus 40% luxury), with essential goods now taxed at just 5% and major appliances/automobiles reduced from 28% to 18%, saving consumers thousands on purchases.

The current market weakness, driven by global factors rather than domestic structural issues, presents opportunities for patient investors to accumulate quality stocks at reasonable valuations for potential strong returns over the next 12-18 months.

Disclaimer : This content is only for informational purpose. It does not make any recommendation to act or invest.

Source: HDFC Securities Prime Research