Fed rate cuts boost; fund managers bullish on Indian stock market

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After a prolonged correction, the Indian market is ushering in a potential turning point.

The latest boost comes from across the Pacific. On September 18, the US Federal Reserve announced an overnight interest rate cut, immediately sparking optimistic expectations in India’s local stock market. Some traders have already begun to bet that the Reserve Bank of India may take similar action at next month's meeting to provide more liquidity support to the market.

Meanwhile, fund manager attitudes have also undergone a significant reversal. The latest survey by Bank of America shows that the number of Asia equity fund managers overweighting the Indian market has now surpassed the number underweighting it. This forms a sharp contrast with August, when India was still the region’s least favored investment destination—a position now held by Indonesia.

Although market sentiment is warming, challenges remain. Data shows that after global fund managers sold a net $4 billion worth of Indian stocks in August, they have not yet returned in large numbers. Analysts point out that the participation of foreign capital is key to whether the Indian stock market can achieve sustained gains.

The Indian NIFTY 50 Index rose slightly today. Previously, the Indian stock market had undergone a notable period of correction, and the MSCI India Index has underperformed the Chinese stock market by about 10 percentage points this quarter.

Is the Indian Stock Market Undervalued?

Contrary to common market opinion, HSBC Research has suggested in its report that the Indian stock market is actually undervalued. The institution believes the market may be at a turning point, and investors should remain vigilant.

The report points out two potential catalysts: first, the US may halve the current 50% tariffs, which would greatly alleviate pressure on India’s economic growth; second, building on the recently introduced consumption support measures, India may further implement structural reforms.

According to CCTV News, on August 25 local time, the US Department of Homeland Security issued a preliminary notice, proposing to impose a 50% tariff on Indian goods from midnight August 27. The notice states the tariffs will apply to "all Indian imports for consumption or extraction from storage for consumption."

It emphasizes that the inflow of domestic capital in India alone is insufficient to support the market, and the return of foreign investors is critical. This view echoes the Bank of America's survey results, which suggest regional fund managers are only now beginning to reallocate to India.

Concerns Over Shadow Banking

In sharp contrast to the optimism in the stock market, India's shadow banking system is facing difficulties. Reports indicate that these non-bank financial institutions are dealing with the double pressures of weak credit demand and rising asset quality risks.

Analysts at Ambit point out that the weakness is particularly evident in real estate and auto loans, with risks spreading from unsecured loans to subprime mortgages.

Technical Signals and Individual Stock Moves

Apart from macro and industry fundamentals, technical charts are also sending positive signals. The Nifty PSU Bank Index has confirmed a classic "inverse head and shoulders" reversal pattern, and is trading at its highest level in more than a year. This pattern usually suggests further upside.

Reports indicate that this trend echoes a similar pattern previously seen in the Nifty Auto Index, where after such a pattern appeared, it triggered a rise of over 10%, highlighting the effectiveness of technical patterns when supported by momentum.

On the individual stock side, analysts are also adjusting ratings. DAM Capital upgraded Maruti Suzuki to “Buy”, while ICICI Securities and BOB Capital Markets gave Indiqube Spaces and Tata Steel initial “Buy” ratings respectively.

Risk Disclosure and DisclaimerMarkets have risks, investments need to be cautious. This article does not constitute personal investment advice, nor does it take into account the individual user’s specific investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article are appropriate to their particular circumstances. Investing based on this article is at your own risk. ```