Markets brace for recovery; political uncertainty looms large

After five consecutive days of decline, Indian markets are expected to attempt a recovery today, supported by a rise in Asian markets. However, political uncertainties and persistent foreign outflows continue to pose significant risks.

Exit polls in two States indicate gains for the Opposition, signalling potential weakness for the Central government in the coming days. Reports also suggest that the ruling party is facing challenges in the upcoming Maharashtra elections. This has sparked concerns that the government might struggle to implement strong economic measures.

On Wednesday, the Reserve Bank of India (RBI) will announce its monetary policy. While most indications suggest no rate cuts, the recent rate reductions by the US and China present challenges for India. With foreign investors pulling out funds in favour of China and the rupee weakening, many wonder if the RBI will surprise the market with an unexpected rate cut.

Global market trends

Asian markets are up today, with Japan leading the charge with a 2% rise, though the yen has weakened further. On Friday, US markets closed higher, with the Dow Jones climbing 341 points (0.81%) to close at 42,352.80. The strong US jobs report for September, which saw an increase of 254,000 non-farm jobs, far exceeding expectations, fuelled the rally.

US futures are also marginally higher this morning, and European markets saw gains on Friday, buoyed by the European Union's decision to impose heavy tariffs on Chinese electric vehicles.

FII selling continues in India

Foreign investors have withdrawn ₹30,718 crore from Indian equities in the last three trading days, with ₹9,896.95 crore sold on Friday alone. Midcap and smallcap stocks were hit hard, with most sectors, except IT and public sector banks, closing in the red.

The Nifty is hovering around critical support levels. If it falls below 25,000, selling pressure is expected to increase. A further drop below 24,750 could signal an extended correction. However, domestic funds and financial institutions are expected to step in to stabilise the market.

Gold and oil trends

Gold prices dipped slightly, closing at $2,654.30 per ounce on Friday, and have fallen further to $2,649 this morning. In India, gold hit a record ₹56,960 per sovereign on Friday. Meanwhile, crude oil prices, which surged last week, have softened slightly, with Brent crude trading at $77.64 per barrel.

Cryptocurrencies saw a sharp rebound, with Bitcoin rising above $63,900 and Ether touching $2,500. Industrial metals saw gains over the weekend, with copper up 0.11% to $9,796.24 per tonne and aluminium rising 1.33% to $2,668.57 per tonne.

Key market indicators (October 4)

• Sensex: 81,688.45 (-0.98%)
• Nifty 50: 25,014.60 (-0.93%)
• Bank Nifty: 51,462.05 (-0.74%)
• Midcap 100: 58,474.45 (-0.93%)
• Smallcap 100: 18,758.65 (-1.02%)
• Dow Jones 30: 42,352.80 (+0.81%)
• S&P 500: 5,751.07 (+0.90%)
• Nasdaq: 18,137.80 (+1.22%)
• Dollar (₹): 83.97
• Brent crude oil: $78.14