The Indian stock market ended its longest consecutive decline of 25 weeks and staged a rebound on Monday

On October 5th, both the Nifty 50 and Sensex indices rose, breaking a consecutive eight-week decline. Market sentiment has finally been substantially restored. Crude oil prices have dropped. The decline in oil prices has reduced India's import costs. India is a net importer of crude oil. When oil prices are lower, the production costs of enterprises will decrease. The pressure of imported inflation will also be alleviated.

Another major positive factor is that the US employment data fell short of expectations. The market believes that the probability of the Federal Reserve's aggressive interest rate hikes has decreased. The expectation of a weakening dollar has strengthened. Global funds have begun to flow back to emerging markets. As an important representative of emerging markets, India naturally benefits. The previous record-breaking foreign capital selling spree has temporarily stopped. Investor confidence has begun to recover. The sectors that had fallen due to high valuations have begun to recover.

Bank and financial stocks all rose. State-owned lending institutions performed particularly well. Credit growth is the core foundation for banks to make profits. Bajaj Finance's new loans increased by 11% year-on-year. Punjab National Bank's global lending grew by 14.8%. Bank of Baroda's quarterly lending increased by 18%. Mahindra & Mahindra Finance's overall lending increased by 22%.

Companies are willing to borrow to expand, and residents are willing to borrow for consumption. The asset quality of banks is also improving. The net interest margin remains stable, and the profit margin is opened up. Financial stocks have a significant weight in the Indian stock market. When they rise, the entire stock index is lifted. The rise of financial stocks is not just a simple concept speculation.

Apart from financial stocks, the consumer and e-commerce sectors performed well. The stock price of ITC rose by 5.1% as Citibank upgraded its rating from "sell" to "buy". ITC is the absolute giant in the Indian fast-moving consumer goods industry. Its performance has always been very stable. Another stock that rose largely is the parent company of Nykaa, FSN E-commerce. Its stock price increased by 4.5%. The company predicted a strong growth in revenue in the second quarter. The fashion and beauty business is its core profit source. The demand for beauty and fashion among young people remains extremely strong. The penetration rate of e-commerce platforms is still increasing.

During this rebound, the small-cap and mid-cap indices rose by 0.5% and 0.7% respectively. Among the 16 major industries, 13 were rising. Previously, large-cap blue-chip stocks had fallen sharply. And now the money is starting to buy those stocks that are below their value. The valuation gap between large and mid-sized stocks is rapidly narrowing. The stock price elasticity of small-cap stocks is greater. In the early stage of economic recovery, small-cap stocks tend to rise faster. Domestic mutual funds in India have a large amount of capital flowing in every month. These passive funds need to find investment targets. Small-cap stocks have become an important fund reservoir. The general rise trend can attract more retail investors to enter the market. Market activity has increased.

Although the Indian stock market has rebounded, challenges still remain. The abundant liquidity within India and the severe global macro environment are in a state of competition. The direction of foreign capital flows is the key factor determining the future height of the market. Previously, foreign capital sold off frantically because the yield of US Treasury was too high. The funds returned to the United States to earn risk-free interest. If the Federal Reserve truly stops raising interest rates or even starts lowering them, foreign capital will resume large-scale purchases of Indian stocks. Once global bond yields fall, the valuation of the Indian stock market can be further restored.

Oil prices are also a core variable. The Indian economy is extremely sensitive to oil prices. If oil prices soar again, inflation and fiscal deficits will deteriorate. The stock market will again face pressure. However, as long as domestic retail and institutional funds continue to buy, the market will not fall too deeply.