MARKET PERFORMANCE OVERVIEW
The Indian equity markets witnessed a sharp correction during the September 4th week, marking the end of a three-week winning streak. Both benchmark indices declined significantly, with broader markets bearing the brunt of the selloff.
Key Index Performance:
- Nifty 50: -2.65%
- Sensex: -2.66%
- Midcap: -4.26%
- Smallcap: -4.70%
After three consecutive weeks of 4% gains starting August 29th, markets gave back substantial gains in just one week, with six consecutive negative trading sessions from September 19th onwards.
MAJOR MARKET DRIVERS
Trump Administration Policy Shocks
H1B Visa Restrictions:
- Friday, September 19th: Trump imposed $100,000 one-time fee for each new H1B visa application
- Wednesday: Announced shift from random to salary-based selection for H1B lottery system
- Friday: US government demanded details from top 10 H1B employers about American worker displacement
- Impact: IT sector crashed -7.86% for the week
Pharma Sector Devastation:
- Thursday night: Trump announced 100% tariff on branded and patent pharma imports to US, effective October 1st
- Impact: Pharma sector declined -5.2%
- Context: The announcement came after a viral 12ft Trump-Epstein statue was installed at Capitol with “Best Friends Forever” caption, potentially serving as a distraction
India-US Trade Talks Stall:
- Commerce Minister Piyush Goyal’s 4-day US visit (Monday-Thursday) showed no tangible progress
- Absence of social media updates or detailed statements from either side indicated failed negotiations
Banking Liquidity Crisis
The Indian banking system faced a severe liquidity crunch that evolved throughout the week:
Timeline of Events:
- September 21: Liquidity surplus crashed to ₹70 billion – lowest since late March
- Root Cause: ₹2.6 lakh crore outflow due to income tax and GST payments
- RBI Comfort Zone: ₹2.5 lakh crore surplus (~1% of bank deposits)
Recovery Outlook:
- Expected improvement in October through increased government spending
- Cash Reserve Ratio (CRR) cut of 25 basis points scheduled for October 4th
- Analysts project liquidity surplus to normalize to ₹2-2.5 lakh crore range
Currency Crisis Deepens
USD/INR Hits All-Time High:
- Weekly close: ₹88.63/USD (+0.63%)
- Broke above ₹89 barrier during the week
- Forex reserves declined to $702.57 billion (-$400 million)
GOVERNMENT BORROWING ANNOUNCEMENT
In a significant fiscal development, the Government of India announced its borrowing plan for the second half of FY 2025-26:
Key Details:
- Total Borrowing: ₹6.77 lakh crore through dated securities
- Market Borrowing: ₹6.77 lakh crore via bond auctions
- Timeline: 22 weekly auctions until March 6, 2026
- Maturity Profile: Spread across 3, 5, 7, 10, 15, 30, 40, and 50-year securities
- Green Bonds: ₹10,000 crore allocation
Market Implications:
- 3-year securities: 6.6% allocation
- 5-year securities: 13.5% allocation
- 7-year securities: 8.1% allocation
- 10-year securities: 28.8% allocation
The announcement provides clarity on government funding requirements and helps market participants plan their investment strategies for the remainder of the fiscal year.
SECTORAL PERFORMANCE
All 16 major sectors closed in negative territory, led by:
- Information Technology: -7.86% (Trump H1B policies)
- Pharmaceuticals: -5.20% (100% US import tariff)
- Healthcare: -4.88%
- Consumer Durables: -4.26%
- Banks: -1.93% (liquidity concerns)
- Metals: -1.02% (least decline due to weaker dollar)
INSTITUTIONAL FLOWS
Foreign Institutional Investors (FII):
- September net selling: ₹30,142 crore
- Weekly selling: ₹20,000 crore
- Increased short positions in Nifty futures (1.7L contracts vs 1.3L long)
Domestic Institutional Investors (DII):
- September net buying: ₹55,736 crore
- Weekly buying: ₹17,500 crore
- Continued to provide market support despite FII selling pressure
INDIVIDUAL STOCK MOVEMENTS
Top Gainers:
- Maruti Suzuki: +2.7% (80,000 new car bookings in four days)
- Axis Bank, L&T, Tata Motors, Adani Enterprises: +1.0% to +1.6%
Major Losers:
- Tech Mahindra: -10.0%
- TCS, Wipro: -6.5% to -8.5%
- Trent, Jio Financial Services: -6.5% to -8.5%
COMMODITIES UPDATE
Gold Performance:
- Current Price: $3,759.855 (+0.28% daily)
- Year-to-Date: +43.23%
- 1-Year Performance: +40.70%
- Sixth consecutive week of gains
Key Drivers: Currency weakness, geopolitical tensions, and safe-haven demand amid market volatility.
OUTLOOK AND KEY TAKEAWAYS
Immediate Concerns:
- Currency Pressure: USD/INR at historic highs creates import cost inflation
- FII Positioning: Aggressive shorting in futures suggests continued selling pressure
- Sectoral Headwinds: Trump policies create specific challenges for IT and pharma sectors
- Liquidity Tightness: Banking system stress expected to ease but monitoring required
Positive Factors:
- DII Support: Consistent domestic buying provides market cushion
- Government Spending: Expected pickup in Q3 should support liquidity
- Policy Clarity: Government borrowing calendar provides bond market visibility
- Sectoral Opportunities: Metals and domestic-focused sectors showing resilience
Investment Strategy:
- Favor domestic consumption themes over export-oriented sectors
- Monitor FII positioning changes for trend reversal signals
- Consider defensive allocations given global policy uncertainties
- Watch for government spending pickup to support broader market sentiment
WEEK AHEAD FOCUS
Key areas to monitor:
- RBI’s currency intervention measures
- Government expenditure patterns
- Global risk sentiment and dollar strength
- Corporate earnings guidance revisions
- Banking liquidity trends post-tax outflows
The market’s ability to stabilize will largely depend on the resolution of currency pressures and the effectiveness of policy measures to address sectoral challenges created by evolving US policies.
