Market Highs Slip Away
Investors are clearly taking advantage of the new index highs to unload their stocks
On Episode 741 of The Core Report, financial journalist Govindraj Ethiraj talks to Anindya Banerjee, Head, Research, Currency and Commodity at Kotak Securities and G. Chokkalingam , Founder at Equinomics Research.
SHOW NOTES
(00:00)Stories Of The Day.
(10:50)Market Highs Slip Away.
(18:48)Why Is The Rupee Hitting New Lows Now?
(19:45)What Happens When Markets Hit Peaks?
(22:24)Will Russian Oil Come Back? - The India Energy Week Segment
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NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Wednesday, the 3rd of December, and this is Govindraj Yathiraj broadcasting and streaming weekdays from Mumbai, India's financial capital, our top stories and themes…
The Stock Market Highs Are Slipping Away.
Why Is The Rupee Hitting New Lows Right Now?
What Happens When The Stock Markets Hit Peaks As They Have Been Last Week?
Will Russian oil come back? - The India Energy Week Segment
New Highs
Investors are clearly taking advantage of the new index highs to unload their stocks. Partly, this is because of the perception that individual stock prices have also hit all-time highs or may not go further from here. For example, there are several nifty 50 stocks which you could have bought a year ago, which are actually quoting far below their price then.
Take TCS or Tata Consultancy Services, India's largest IT services company, which was quoting at about 4,276 on the 2nd of December, 2024. And was at 3,137. That's 3,137 on the 2nd of December, 2025.
Now, if the index is at an all-time high, but a bellwether like TCS is not, what do you do? Well, one thing, of course, is to remember that the index itself has been driven this time by the likes of HDFC and ICICI Bank and Reliance Industries. The other is to focus on the IT services space and decode whether the sector will regain some of its lost shine. Will it? Well, we will have an answer for that in a moment.
Meanwhile, the benchmarks fell for a third consecutive session on Tuesday as concerns over foreign outflows and the rupee hitting a record low fuelled further profit booking. The indices had hit record highs after 14 months last week, thanks to improving earnings and strong macroeconomic signals that we've been seeing. Now, while the markets ignored the fact that there is no trade deal with the United States yet, the currency markets have very much accounted for it and more on that shortly.
The rupee did hit an all-time low of 90 rupees per US dollar in intraday trade on Tuesday. And the Sensex was down 503 points to 85,138. The NSE Nifty 50 was down 143 points to 26,032.
In the broader markets, the Nifty Mid Cap Index was also down 0.2%. The Nifty Small Cap Index was down 0.5. And elsewhere, on the brighter side, foreign brokerages continue to put out bullish calls for 2026, the latest is Nomura, which expects the Nifty 50 to climb to 29,300 by end 2026, almost 12% above current levels, thanks to cyclical economic momentum and earnings growth as they regain traction. Nomura said in a note on Tuesday quoted by Reuters that it had dropped its valuation concerns in May 2025 after markets steadied from the tariff-driven sell-off triggered by the US Inc hike in import duties. It also said that calmer geopolitics are from a macro backdrop and signs of a cyclical pickup now reinforce the case for higher valuations.
So now HSBC, Goldman Sachs, Morgan Stanley, and JP Morgan are amongst the many banks, including, of course, Nomura, who issued bullish calls for 2026. The themes are similar, and Nomura seems to be reiterating what others are saying, that India's relative underperformance in the last one year has helped valuation premiums normalise. And then, of course, there are those strong local flows which anchor market stability.
So given that we are at a peak after some 14 months, what's the usual market behaviour at a time like this, or put differently, how do we interpret market behaviour at a time like this, and what are the trends from the past? I reached out to veteran market analyst G. Chokkalingam to understand what these trends are that we could see from past peaks, and more importantly, how markets could go from here.
INTERVIEW TRANSCRIPT
G Chokkalingam: If you take our last 30 years or 35 years of Sensex, it's never been linear. Every peak has to see some correction, but of course you can't predict what is a peak. There could be multiple sub-peaks before you really see mother-of-all peaks and then correction.
That's a big question that very few people can, if at all, succeed in predicting. But otherwise, after a terrible peak, it always significant correction. Roughly, it happens once in 3-4 years, maximum 3-5 years range.
Therefore, this time also probably you can see that kind of correction. May not be a crash, but correction is possible. And second, very interesting insight I observed in the last 35 years is that when market hits a peak, you get a peak of Sensex or Nifty, or for that matter, small-cap and mid-cap.
But there are huge number of stocks, they move far ahead of these average PEs of Sensex or Nifty or small-cap and mid-cap. So the real boom comes in terms of perception driven PE for a large number of stocks, and they go way beyond benchmark indices. That costs the profit booking and correction.
Some point in time, the valuations are not at all reasonable. This is a fact related to the first point also, but this is a rather explanation how the correction happens, you know, once you hit the peak. So this time also a similar thing has happened.
The way in which it is happening is slightly different, but these two trends, what we saw in 35 years of brick and bull run, now also it's happening.
Govindraj Ethiraj: Right. And what's the sort of consolidation phase to recovery that you expect now, given where we are?
G Chokkalingam: The consolidation is quick, and it is not going to be very long for Sensex and Nifty, because today the mutual funds are, the AOM is very high, about 50 lakh crore rupees, and BIS are supporting, both insurance company and mutual funds are supporting the market. So the Sensex and Nifty would consolidate around this level, and they may see a linear progression, there may not be a really major fall. But for small and mid-cap is a real concern, that is where you see extraordinary stretch to valuations.
So they already corrected actually, thanks to the index heavyweights, even in small and mid-cap, you are not seeing the real pain in the small and mid-cap space in the form of indices. Mid-cap index is down just one or two percent from the peak, small-cap index is down only some six, seven, eight percent from the peak. But huge number of stocks, hundreds of stocks in the small scapes are down anywhere from 15 to even 50, 60 percent.
So that is the space where I think the consolidation is going to take place after three months or six months, till then, I think the pain will continue, they would keep falling. So there's a dichotomy between Sensex and Nifty one hand, and these, particularly the small and mid-cap on the other hand.
Govindraj Ethiraj: So even within the Nifty, now that you mentioned it, there are so many stocks which are actually at a discount to their highs that were hit about 52 weeks ago, or over the year. TCS is a classic example, and we were just talking about it. How do investors look at this?
I mean, one is to go sector specific and say, okay, can TCS or some other stock recover? Or if the markets are at a peak, can these stocks ever come back?
G Chokkalingam: Absolutely, it is a sector call. So market is very rational in punishing stock like TCS, because the industry is not growing in a strong double digit for last three years. Now pain is more.
Even 4-5% growth in dollar term has come down to 2-4% range. Unless the IT sector shows a major turnaround in terms of growth in dollar revenue, this is not going to change. That means, constantly, there are about six to eight prominent sectors which constitute Sensex and Nifty.
So what investors need to look at is, one, they should be prepared to do sectoral rotation. Two, they should keep on seeing which sector offer growth opportunity in relative terms. So that is what going to determine.
So if you see telecom doing well, some stocks in the Sensex Nifty related to automobiles are doing well. And suddenly, cement turned around and that also started doing well. So clearly, there is a rational within Sensex and Nifty basket.
So one has to go after the growth sector in the short term in these two indices.
Govindraj Ethiraj: Right. What's your outlook for the rest of 2025, Shoka?
G Chokkalingam: Rest of 2025, that's about a month's time. The Sensex may remain around this time or it may go up even 1 or 2-3% maximum. But the pain will continue in the small and mid-cap, particularly in the small caps.
Because this is the first time, you know, the difference between the previous peak and current peak, multiple themes played out. In the last 30 years, whenever there is a massive bull run, couple of themes only will run up. But this time, you had multiple themes like a capital market, solar, digital, public sector banks, jewellery companies, EMS. So I've not seen so many multiple themes playing out. Secondly, most of these themes were newly listed layers. It's new to the market itself, like a digital or EMS or solar. And this time, the SMEs also joined in the bull run.
And this is also supported by investor base. The earlier bull runs, you had only 4 to 6, 7 crore investors. Today, it is 23 crore.
So a lot of young investors have come. So it is both positive and negative. Positive, the base has widened.
So there can be a long-term support. But negative, a lot of money is lost in the multiple themes. And a lot of money is lost in the SMEs space.
So that itself, you know, is going to pull down the small cap and mid-cap because people don't have much money to book profit from X and enter Y. Therefore, that dichotomy would continue not only for 25 year end, it is likely to continue even FY26 year end. That is, it might continue till March 31st.
That is, sensibility would be stable or even go up 2 to 5%. But the small and mid-cap would continue to bleed. But of course, one has to do bottom-up approach, be very, very selective.
There is a lot of opportunity to create a lot of wealth in the next 1 to 3 years. That again will come from small cap. So the lesson is that be choosing the theme.
Now, for example, solar theme. Suddenly, there is an estimate that overcapacity is going to be about 50%. So choose a theme where the competitive intensity is not huge and choose a company where the valuation comforts till exit.
So this is the space, once again, will create a lot of wealth thanks to exponential growth in the investor base.
Govindraj Ethiraj: Right. Chokka, thank you so much for joining me.
G Chokkalingam: Thank you.
A Record Low
The rupee fell to a record low on Tuesday, even as there was or is continued silence on a trade deal between India and the United States, which has obviously hit trade and portfolio inflows.
The rupee touched Rs.89.94 against the US dollar before ending at Rs.89.87, down nearly 0.4% on the day, and logging its fifth consecutive daily fall. And after the local spot market closed, the rupee weakened to 90 per US dollar on the interbank order matching system before trimming its losses according to Reuters. Analysts also told Reuters that since the current stance of the rupee weakness continues, they've been advising exporters to just sell dollars on a cash spot basis and keep minimum hedges.
To understand why the rupee is seeing a sudden acceleration in its depreciation or fall, and what is the outlook going ahead, I reached out to Anindya Banerjee, head of research for foreign exchange and interest rates at Kotak Securities, and I began by asking him that very question.
INTERVIEW TRANSCRIPT
Anindya Banerjee: See, actually the major reason is that the market was anticipating the Indo-US trade deal to conclude by November end. That was the initial deadline which the market was working on. But after that deadline was missed, right now there is uncertainty as to when it will happen.
So that had played a role in pushing the USDNR above 89. Once the speculators or the importers did not see much of intervention from the RBI, so naturally the USDNR started to drift higher and then the speculators took over. So what happens with any market, and the currency market is no exception, that beyond a point the speculators create their own fundamentals.
So right now that's exactly what is happening in USDNR. Last 48 to 72 hours, we have seen there's been a chatter about a large expiry of NDF positions in the market offshore. And that had to be rolled over.
So naturally when you are trying to roll over or let it expire, so when you are trying to roll over, what happens is you put upward pressure on the near contracts because you have to buy back because it's short. And then you sell on the far contracts. That would have played one trigger.
And now 90 being the sort of psychological mark, we could also see a lot of options being written, generally such large numbers, the big hand is 18, 90 or 70. You tend to see a lot of exotic options with strikes above that being written. So when those thresholds are crossed sustainably, those stop losses are hit and it can accentuate the move on that direction in this case upside.
So this is what is playing out. Just to emphasise on the RBI point, if you look at that data which RBI has supplied since I would say it is up to September, how much of intervention they have done. Something very interesting stands out.
Up to March of this year, which means FY25, the last three years, so FY23, 24 and 25, average monthly gross intervention on the spot markets buy and sell was around $42 billion. They were using both sides of the market to cap volatility. This financial year up to September, that data shows it's $10 billion, around $10.5 billion, almost a one-fourth decline, which shows RBI is taking a more hands-off approach. I think it could be because of the fact that RBI thinks because our trade war is on, so why not, and the inflation is low, why not use that room to give some support to the exporters?
Govindraj Ethiraj: Got it. Let me come to the other part of the question. So, you know, India, the domestic macro signals are fairly strong.
We've seen 8.2% GDP growth in July to September, record low inflation that is, and interest rates are low. So, I mean, the overall macro signals are fairly strong within the economy, and yet we are facing so much pressure on the external front. So, how do you as a forex and currency strategist look at that?
In fact, it's a fantastic point because that is exactly what we are seeing.
Anindya Banerjee: Rupee is looking very undervalued because one of the models which we use to understand whether a currency is overvalued or undervalued and how much is RER model, Real Effective Exchange, which takes into consideration the interest rate as well as the inflation. Now, that model works when a couple of risks are not in the horizon. First is a political risk, second is a policy risk, and third is basically a monetary policy risk.
Right now for India, on all three counts and more, India looks like an ocean of stability, as you pointed out, the internal stability. In spite of that, the rupee is depreciating, and that's exactly why the RER is saying it is as undervalued as it was in 2018. That's seven years back.
And very interestingly, in 2018, when the sentiment changed, rupee appreciated by almost 9 to 10% over the 9 to 12 month period against the dollar. That doesn't mean that's exactly something similar is going to happen, but it just means a one big positive trigger, be it internal in the way of a trade deal, or the US macro environment worsens and Fed is pushed to step in, any of those could actually trigger reversal of this trade.
Govindraj Ethiraj: I just want to go back to just get an explanation from you on India on the NDF part. Can you explain that and how the mechanics of that works in either a normal sort of trading day or what happened on Monday, Tuesday?
Anindya Banerjee: In the NDF, there are a number of participants. First of all, NDF means non-deliverable forwards, which means delivery don't happen, right? So it is cash settle.
Now what happens is you have the speculators, the foreign traders who are speculating over there. So if they have a certain position, it will either expire accordingly, cash settle, or it will be rolled over. That's not the issue.
The issue happens is when either RBI has a large position, in this case short, and they decide to not let it expire, but to roll it over. That can put an upward pressure on the near-term contract. Also, there are arbitrages between onshore and offshore.
So if the NDF, generally when the USDN is rising, NDF tends to quote a premium because there the market is able to express itself a little more free, because of which a lot of people sell in the NDF, especially the banks, sell in the NDF and they buy in the onshore. Indian banks do that because RBI allowed them long back. Now, because of which, now if you have a short position in the NDF and long position in the onshore, expiry is coming.
Now either in the onshore market, you actually have to cover it because it is delivery waste. It is not cash settled in the banking, in the interbank. In the NDF, it will get auto squared off at the reference rate, right?
Here you have to buy at the reference rate. That can create an upward pressure on the expiry date in the onshore market because they have to bid, actually bid and that creates this upward pressure. And sometimes what happens is, if the NDF is at a discount and the onshore is at the premium, the reverse trade happens.
He will be short in the onshore, he will be long in the NDF. Either it's an RBI position which had to be rolled over or it could be this arbitrage which creates a pressure because you have to either close the arbitrage or put the arbitrage into the next 10 hours.
Govindraj Ethiraj:
Last question on this, so we are almost at 90 and how do things look for the rest of 2025?
Anindya Banerjee: It actually looks like the upward pressure would continue and if some kind of a geopolitical risk arrives, we can see a spike towards the level of 91 or 91.5. But the 90 level for the very near term, that is this week is very important because if RBI lets it close above 90, we could see more speculative pressure on the upside. As I said, a lot of options are there and that can accentuate towards 91 levels. So 89 is now a very strong floor.
As long as it's not closing below 89, I don't think the speculators will give it up so easily.
Govindraj Ethiraj: Right, Anindya, thank you so much for joining me.
Anindya Banerjee: Thank you.
Gold And Silver
Gold prices fell on Tuesday, pressured by rising US treasury yields and profit booking.
After that six-week high hit on the Monday session, even as silver pulled back from its record high hit in the previous day again, as we discussed just yesterday. Spot gold was at about $4,203 per ounce on Tuesday morning, and analysts told Reuters that they're seeing traders take profits after prices rebounded from $4,000 to $4,250 in the last two weeks. If you were to look at domestic markets, gold prices have staged a comeback, rising about 8,400 rupees in just two weeks from a low of 122,351, that's 1,22,351 in the middle of November to touch a high of 1,30,778 on Tuesday.
The India Energy Week Segment
Geopolitical risk is once again casting a firm shadow on oil prices, though the prices themselves are somewhat stable. But before we come to that, while India has reduced its import of Russian oil, a Kremlin spokesperson said on Tuesday, the dip may last only for a brief period as Moscow plans to boost supplies to India.
In a video press conference with Indian journalists supported by Business Standard, the spokesperson said that Russia remains an important supplier of energy to India and called for the setup of trade mechanisms that cannot be affected by third countries in a reference to the United States. His statement comes after reports of major Indian oil refining companies cutting or stopping Russian oil imports because of those steep US tariffs, which add up to 50%, of which 25% is specifically for importing Russian oil. And separately, the United States has also sanctioned Russia's top oil producers like Rosneft and Lukoil.
The spokesperson termed these tariffs as illegal, saying that they have a deep experience in performing under regimes of these illegal sanctions and they have their own technologies in doing that. Now, what those technologies do is not very clear to me. Meanwhile, the spokesperson also said that they're looking forward to possibilities despite everything to ensure their right to sell oil and to ensure their right of those who want to purchase oil to ensure the right to buy their oil.
India is the world's third biggest oil importer after China and the United States and used to buy most of its crude from Russia. On the other hand, imports of Russian oil have fallen by nearly a third after those sanctions kicked in on the 21st of November. That's last month.
Reliance Industries was once India's biggest buyer of Russian crude and has halted imports, or so we hear. Other refiners, including Mangal Refinery and Petrochemicals, Hindustan Petroleum and HPCL Mittal Energy have also stopped purchasing Russian oil. Meanwhile, geopolitical risk premiums have gained in the last few sessions, particularly because of increased tensions between Russia and Ukraine, even as peace talks are on, but there have been several drone strikes by Ukraine on Russian energy sites and elsewhere mounting US-Venezuela tensions.
Despite all of this, prices were down to about $63 a barrel midday on Tuesday, and West Texas Intermediate Crude was at about $59 a barrel.
Dropping Power Demand
Elsewhere, power demand in India is down, which suggests lower consumption mostly, but also potentially lower economic activity like in manufacturing.
A Reuters report says India's power output fell for the second month in November as temperate weather and a slowdown in industrial activity kept electricity demands tepid. According to government data, total electricity generation in November fell about 1% year-on-year, following a 6% annual drop in October. On Monday, as we reported, the Index of Industrial Production, or IIP data for India, showed India's manufacturing sector slowing down with growth decelerating to the slowest pace in nine months, and this is the first time that power demand has fallen in the month of November in at least five years according to that report.
Demand usually picks up in the latter part of the year as industrial and agricultural activity recover after the monsoons. Analysts told Reuters that the early onset of winter has reduced cooling requirements while previously weak summer conditions and an early monsoon has already suppressed demand.
