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Below the Quote on Weekly Note 06th September by Mr. Ajit Mishra – SVP, Research, Religare Broking Ltd

Strong GDP and GST Reform Drive Gains; Inflation Data in Focus

Market Summary

Markets ended the week on a firm note, with benchmarks gaining over a percent, supported by strong domestic macroeconomic data and policy reforms. The Nifty rose 1.29% to close at 24,741, while the Sensex advanced 1.13% to 80,710. The rally was broad-based, with midcaps and smallcaps outperforming, up 1.8% and 2.5% respectively, reflecting healthy risk appetite despite intermittent global caution.

Key Market Drivers

Investor sentiment was buoyed by stronger-than-expected Q1 GDP growth at 7.8%, the fastest pace in five quarters, reaffirming India’s relative resilience. The GST Council’s decision to simplify the tax structure into dual slabs of 5% and 18% further added policy clarity and boosted cyclical optimism. High-frequency indicators also painted a positive picture—manufacturing PMI rose to 59.3, the highest in 17 years, while services PMI surged to a 15-year high of 62.9. On the external front, the current account deficit narrowed to 0.2% of GDP, while FDI equity inflows grew ~15% YoY in Q1, underscoring balance-sheet stability. However, persistent FII outflows and global uncertainty surrounding U.S. inflation and monetary policy tempered risk-on sentiment.

Sectoral Snapshot

Cyclical and domestic-facing sectors led the upmove. Metals gained on strong demand signals, autos rallied on robust sales and festive expectations, and consumer discretionary stocks advanced in anticipation of a demand upcycle. FMCG also benefited from steady GST collections (+6.5% YoY in August) and pre-festive season optimism. In contrast, IT underperformed due to global demand concerns, while banking and financials remained range-bound, limiting broader market upside. Notably, midcaps and smallcaps outshone benchmarks, delivering nearly 2.5% gains with rotational leadership across themes.

Key Events to Watch

The coming week will be data-heavy both domestically and globally. On the domestic front, August inflation data (September 12) will be closely tracked, along with bank credit and deposit growth and forex reserves—especially given the recent underperformance of banks. Globally, key U.S. data releases—including consumer inflation expectations, PPI, CPI, jobless claims, and consumer sentiment—will be critical in shaping Fed policy expectations and influencing flows. Additionally, any updates on the India-U.S. trade deal could provide further support to market sentiment.

Technical Outlook

Nifty: The index rebounded from a low of 24,400, slightly above the previous swing low of 24,337.5, but continues to consolidate within a triangle pattern marked by lower highs at 25,153.65 (August 21) and 24,980.75 (September 4). A decisive breakout above 25,000 could trigger fresh momentum, taking the index toward 25,250 and then 25,400. On the downside, the 24,280–24,400 zone offers immediate support, with stronger support at 24,150.

Bank Nifty: The index is holding above its long-term 200-DEMA support near 53,600, though lack of sustained buying in private banks has capped upside. A move above 54,900 would signal strength and open room toward 56,000, while a breakdown below 53,600 could trigger further downside toward 52,700.

Broader Indices: Market breadth remains constructive, led by midcap and smallcap outperformance. Sustained strength in broader indices, alongside a recovery in banks, will be the key for a more durable uptrend. Midcaps, in particular, continue to show relative strength and are likely to maintain their leadership.

Strategy Ahead

A cautiously constructive stance is warranted in this data-heavy week. Investors should focus on quality names in domestic cyclicals such as autos, metals, and consumer discretionary, while retaining defensives like select FMCG and pharma as portfolio stabilizers. Given external uncertainties, traders should avoid aggressive leverage and adopt staggered allocations rather than chasing

momentum. Tight risk management around key support levels is essential, particularly with banks and IT still underperforming.

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