Can September series bring the long-awaited correction in Indian stock market? Fundamental and Technical experts answer

As the Indian stock market enters the September series, investors and analysts alike are closely watching whether this could finally be the month when the long-anticipated market correction occurs. With the Nifty and Sensex sitting at all-time highs, the market’s trajectory has been impressive, driven by strong domestic and global factors.

Despite this historical trend, the benchmark indices have gained nearly 16% year-to-date, bolstered by positive foreign institutional investor (FII) flows and favourable domestic and global cues.

However, September has historically been a challenging month, often characterized by heightened volatility and market pullbacks. With mixed signals from global central banks and geopolitical uncertainties, the stage is set for what could be a decisive period for the markets.

The Nifty has ended September on a negative note in six out of the last ten years, averaging a return of -0.6% during this month, which is generally weak for the markets due to seasonal trends. However, the index is currently on a winning streak, marking its first such run of 12 consecutive trading sessions since 2007.

Most market experts do not anticipate the long-awaited correction to materialize in a significant way. They suggest that even if a correction occurs, it is likely to be brief rather than substantial. Such pullbacks could serve to clear excesses and potentially set the stage for a more stable market environment. As a result, the Nifty 50 could reach new highs in the near term, with any corrections expected to be minor rather than indicative of a major downturn.

 Long-Awaited Correction?

As September unfolds, market participants and analysts are closely watching to see if the Indian stock market will experience the long-anticipated correction. Here's a comprehensive look at what experts are predicting.

Fundamental Views

Shrikant Chouhan, Head of Equity Research at Kotak Securities, notes that historically, the September series tends to exhibit favourable uptrend ratios. If the market is in a corrective phase, it typically continues to correct, while an upward trend often persists if the market is making new highs. Currently, the Nifty and Sensex are at all-time highs as they enter September, a positive sign. With global and domestic macroeconomic factors in their favour, particularly the decline in crude oil prices, and the possibility of a Federal Reserve rate cut, the market might not see the much-anticipated correction. Even if a correction occurs, it is expected to be short-lived.

Neeraj Chadawar, Head of Fundamental and Quantitative Research at Axis Securities, suggests that much of the recent market rally is already priced in. He expects consolidation and sector rotation to drive market performance in the near term. While mid-caps and small-caps have shown strong performance recently, they may now offer less valuation safety compared to large caps. Consequently, the broader market might experience some time-based correction, but the Nifty 50 could still achieve new highs. Chadawar recommends focusing on 'Growth at a Reasonable Price' and 'Quality' stocks and advises maintaining liquidity to capitalise on market dips over a 12-18 month investment horizon.

Varun Saboo, Head of Equities at Anand Rathi Shares and Stock Brokers, believes that if any corrections occur, it will likely be minor. He attributes this to India’s robust economic growth and reasonable valuations for large and small caps. Although midcaps appear expensive, Saboo recommends a bottom-up approach for stock selection in the current market.

Trivesh D, COO of Tradejini, acknowledges the historical trend of September being challenging for the Nifty 50 and notes current market overvaluation and potential regulatory tightening in the SME IPO segment. He foresees plausible corrections, though they are expected to be modest, potentially setting the stage for a more stable market environment. With possible rate cuts from the US Federal Reserve and the RBI, a market rebound could also be on the horizon, although market direction remains uncertain.

Deepak Jasani, Head of Retail Research at HDFC Securities, points out that September is historically volatile for global stocks, and Indian markets have risen in 9 out of the past 10 months. Upcoming state elections and geopolitical tensions could impact market sentiment. While these factors could contribute to a long-awaited correction, a resumption of fund inflows might mitigate the impact if global risk appetite remains unaffected.

Aamar Deo Singh, Sr. Vice President of Research at Angel One, observes that the markets continue to perform well, with a 16% year-to-date gain. While the US Jobs data and Fed’s interest rate decisions could influence market direction, Singh advises caution for new investments and suggests adopting a longer-term approach with systematic investment plans (SIPs). He highlights critical support and resistance levels for the Nifty, noting 24,500-24,600 as support and 25,500-25,600 as resistance.

Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities, indicates that the Nifty has historically performed poorly in September, with an average return of -0.6%. The current winning streak, lasting 12 trading sessions, is unprecedented since 2007. Given this streak and upcoming events like the Fed meeting, Sheth anticipates a correction in September, driven by profit-taking after recent gains.

Technical View

Ajit Mishra, SVP of Research at Religare Broking, does not rule out the possibility of consolidation in September but does not expect a significant dip given favorable global and domestic conditions. He advises monitoring major banking stocks for directional cues and expects the Nifty to find initial support around the 25,000 level, with significant support at 24,750, aligning with the 20-day Exponential Moving Average (DEMA). He anticipates that banking sector participation could drive the Nifty towards a new milestone, potentially reaching 26,000.

Aiyub Yacoobali, Chairman and Managing Director of South Gujarat Shares And Sharebrokers / Yacoobali Venture Commodity Broking, highlights a bullish rounding pattern breakout for the Nifty on its daily chart. The pattern suggests a target around 25,802, contingent on closing above the resistance level of 25,256-25,290. Short covering in Bank Nifty could occur if it trades above the 51,497–51,556 resistance zone, with potential rallies up to 52,837–53,235.

In conclusion, while September historically poses challenges for the Indian stock market, current indicators and expert opinions suggest that any potential corrections may be brief rather than significant. Investors are advised to stay informed and consider both fundamental and technical analyses when navigating the market in the coming weeks.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.