Indian Equities Log Best Weekly Rally Since April as IT Stocks Lead

Synopsis

Indian stocks had their best week since April 10, with the Sensex rising 3.1%, and the Nifty 23,146.15, up 2.8%. The Nifty IT index advanced by around 11.7% in a week to its highest level since April 2008, as investors switched their focus from global AI-stock sell-off to better-than-expected quarterly earnings. The shares of FMCG and pharma companies trailed. The results of ICICI Bank and HDFC Bank and the IPO of Jio could impact the upcoming week, analysts said.

India stocks had the best week in over two years with software stocks leading the way. The Sensex ended 3.1 per cent higher at 74,729.27 and the Nifty 50 ended 2.8 per cent higher at 23,146.15, Reuters reported, marking their best weekly performance since April 10. The indices increased 0.6% and 0.7% Friday alone.

The IT surge

The Nifty IT index outperformed the rest of the market. It accelerated 3.9% on Friday that pushed its weekly advance to 11.7%, the biggest increase in 18 years. The weekly increase was recorded by the Business Standard at 11% as of April 2008 and another source reported it to be 11.5%. The rounding of the data was slightly different. The index rose for a fourth straight session, according to 5paisa.

The move was motivated by two factors. Firstly, earnings in large IT firms beat expectations in the quarter. Second, global AI stocks saw a plunge causing investor interest to shift to Indian software stocks.

The lack of any significant disappointments from IT earnings has made investors feel good, Saurabh Jain, deputy vice president of equities at SMC Global, said.

Mr Jain said that management commentary on the rise in AI driven revenue had led to the investors coming back to what were beaten down names and had also seen a bounce back in IT which had helped the IT benchmarks to rise in turn.

Breadth and laggards

The rally was focused and not generic. Almost 40 stocks in the Nifty index returned positive, with Tech Mahindra and TCS taking the lead in the rally with a maximum gain of 18%. Among the biggest fallers in the Nifty were Nestle India, Max Healthcare, IndiGo, Apollo Hospitals and Larsen & Toubro, with FMCG and Pharma stocks continuing to remain on a downtrend, the same report added. The overall markets were quiet, according to 5paisa, with heavyweight IT stocks leading the indices.

A second week of weekly increase

This was the second straight weekly advance for the benchmarks. The Nifty's rally was coming off a low base as it had been on a losing streak for eight consecutive weeks. The move was also assisted by the value buying that took place on other parts of the trading floor after the global AI selloff.

What will propel the markets to the next level

Reuters reported that the near-term trend would be determined by the results of ICICI Bank and HDFC Bank on Saturday. The market and in particular the IT space could head into a liquidity vacuum as the Jio Platforms IPO is set to open on October 21, Mr. Jain warned. The parallels with the global AI trade are also noteworthy: The same drip in money that took stock to India was caused by worries about AI spending and borrowing costs.

Implications

The week proved to be a reminder to investors of the dramatic effect that sentiment can have when earnings are reported. In the sector, discussions about AI-driven revenue have become a pivotal part of software exporters' valuation. Leadership is narrower for the market as a whole, meaning that a retreat in IT shares will give less margin for error for the market as a whole.