The Next Big Moves: Themes Poised To Lead The Rally

While renowned investors like Warren Buffett trimmed a substantial 50 per cent stake in Apple Inc., and mutual funds sat on a cash pile of ₹1.86 lakh crore in August, many wondered, “Do they know something that the rest of us don’t?” Meanwhile, the markets have continued to defy expectations, reaching record highs. So, are you among those riding the rally, or are you waiting for a safer, risk-free opportunity? Mandar Wagh analyses this year’s market performance, explores third-quarter trends from recent years, and highlights key investment themes set to drive the next market rally 

Despite the ongoing talks of a potential recession or a long-overdue market correction, developments such as renowned investor Warren Buffett’s decision to go on a sell-off spree and amass a large cash reserve following the sale of shares in companies like Apple and Bank of America, have sparked speculation about an impending market downturn. This came at a time when concerns about a U.S. recession were heightened by weak employment indicators. 

Although economic indicators later showed some improvement and the Federal Reserve lowered interest rates, pushing the markets to record highs, some investors are now questioning whether Buffett’s strategy, along with other high-profile investors who sold stakes, is costing them potential gains in the booming stock market. A similar situation is unfolding in India. While global indices have been on a strong upward trend, India’s benchmark Nifty 50 has soared around 20 per cent year-to-date, putting it on track to record its highest annual gains in the past decade provided the momentum continues. 

In this scenario, investors who have hesitated to join the rally, wary of a potential correction, may experience FOMO (fear of missing out) and the risk missing out on valuable investment opportunities. We aim to guide you through this year’s market performance, explore third-quarter trends from recent years, examine the key drivers behind these movements, and highlight investment themes to watch in the next rally. 

Unlocking 2024: Insights into a Soaring Market 

The Indian stock markets experienced significant growth in 2024, driven by the country’s strong economic fundamentals, which helped sustain investor confidence, especially the domestic investors. Now, global investors too are coming back after the initial sell-off. In a recent surge, foreign institutional investors (FIIs) injected an impressive ₹14,000 crore into the Indian markets in just one day, marking the highest single-day inflows in the past three years. Let’s explore the factors that fuelled the optimism. 

At the start of FY24, the Reserve Bank of India (RBI) prioritised lowering inflation to its target range of 2-6 per cent. To manage this, the RBI maintained the repo rate at 6.5 per cent, striking a delicate balance between promoting economic growth and controlling inflation. This approach supported consumer demand and business investments while ensuring price stability. By the end of FY24, inflation eased to 5.4 per cent, within the RBI’s forecast range, demonstrating the success of its monetary policy 

For FY25, the RBI aims for an inflation target of 4.5 per cent, reinforcing its commitment to price stability. S & P Global Ratings expects the RBI to implement two rate cuts before the end of the financial year. Additionally, the agency has maintained its GDP growth forecast for India at 6.8 per cent for the current financial year, reflecting confidence in the country’s economic trajectory. The Asian Development Bank (ADB) noted continued strength in the services sector, driven by domestic consumption, infrastructure spending and private investment. 

Looking ahead, the ADB has forecast 7 per cent growth for FY25 with similar projections from the IMF and Morgan Stanley. India’s foreign exchange reserves increased by USD 223 million, reaching an all-time high of USD 689.46 billion for the week ending September 13, as per data released by the Reserve Bank of India. The Indian government reduced its fiscal deficit target for the financial year ending March 2025 to 4.9 per cent of GDP, down from the 5.1 per cent set in the interim budget in February 

This revision is supported by a significant surplus transfer from the Reserve Bank of India and strong tax revenue collections. The RBI announced a record surplus transfer of ₹2.11 lakh crore to the central government, marking the highest-ever transfer in its history. In August, central and state governments collected ₹1.74 trillion in Goods and Services Tax (GST) revenue, reflecting a 10 per cent annual growth. This rise aligns closely with the projected economic growth rate for the current fiscal year. 

2024 Market Breakdown: Sector Winners and Laggards
The performance of Indian equity markets in 2024 has been mixed so far. Until June 2024, while major global indices continued to outperform, the Indian benchmarks—BSE Sensex and Nifty 50—remained range-bound, showing only modest gains. However, with the outcome of the Lok Sabha elections confirming political stability, the markets saw a significant rebound. The return of the incumbent government boosted investor confidence, sparking a remarkable 13-day winning streak for Nifty 50, which garnered global attention.

The indices went on to hit consecutive record highs, delivering a 20 per cent return in the first nine months of the year. It’s crucial to examine the sectoral performance as well. As depicted in the graph, the real estate, automobile, metal and energy sectors experienced a strong uptrend leading up to the election results, significantly outperforming the IT, FMCG, pharmaceuticals, banking and finance sectors. However, post-June, the trend shifted—while the early outperformers saw limited growth, the previously lagging sectors demonstrated a robust upward momentum 

Despite the shift, the real estate, automobile and power and energy sectors managed to retain their position as best performers and are expected to maintain their momentum in the December quarter, in line with historical trends. To provide a comprehensive analysis, we evaluated all BSE-listed companies across various sectors and calculated the average returns for the Q3 period (October-December) over the last five years. 

As highlighted above, the table reflects the significant outperformance of sectors such as real estate, infrastructure, power, banking and financial services, automobile, and retail. Additionally, we have listed the top 10 best-performing companies across Large-Cap, Mid-Cap and Small-Cap segments based on their average Q3 returns over the past five years, where this trend continues. 

Sectors Set to Outperform in the Festive Quarter
The Indian economy, one of the fastest-growing in the world, is characterised by its diverse sectors. Market dynamics, influenced by domestic consumption, policy changes and global factors, tend to shift with seasonality. A detailed analysis of the October-December period reveals that several sectors in India have historically outperformed during this time, driven by a variety of factors such as festive season demand, favourable economic conditions and cyclical trends. In this detailed analysis, we will explore these sectors by reviewing their historical performance and the key factors driving their success during this period. 

Real Estate
The real estate sector in India is a significant contributor to the country’s GDP and employment, playing a vital role in driving economic growth. During the OctoberDecember period, the real estate sector experienced a notable uptick in activity, driven by favourable market conditions, festive sentiments, and increased consumer demand for residential and commercial properties. 

■ Festive Season Sentiment - The festive period, especially around Diwali and Navratri, is considered an auspicious time for making significant investments, including purchasing property. This cultural inclination towards home buying during festivals leads to a spike in real estate transactions. Builders and developers capitalise on this sentiment by offering attractive deals, discounts and financing options.
■ New Project Launches: Real estate developers strategically time the launch of new residential and commercial projects to coincide with the festive season, generating excitement and demand in the market. Buyers are often incentivised with exclusive festive offers, making this period ideal for both end-users and investors.
■ Government Policies and Incentives: Over the years, various government policies, such as Pradhan Mantri Awas Yojana (PMAY), have provided incentives for first-time home buyers, particularly in the affordable housing segment. Additionally, reduced interest rates on housing finance boost demand during this quarter.
■ Increased NRI Interest: Non-Resident Indians (NRIs) often return to India during the festive season, making it an opportune time for them to invest in property. Many NRIs take advantage of favourable exchange rates and exclusive offers to invest in real estate, further boosting demand in this sector. 

Automobiles & Automotive Ancillaries 
The Indian automobile industry, encompassing passenger cars, two-wheelers and commercial vehicles, has a cyclical growth pattern, peaking during the festive season. The October-December period is critical for this sector due to high consumer sentiment around festivals, particularly Diwali, which is considered an auspicious time for purchases, including vehicles. 

■ Festive Buying Sentiment: Diwali is seen as a lucky time for big-ticket purchases like cars and two-wheelers. Automakers often roll out special deals, discounts and financing options to attract buyers during this period.
■ New Model Launches: Automobile companies strategically time the release of new models or upgrades to coincide with the festive season, further boosting sales. These launches often generate significant media buzz, enhancing consumer interest.
■ Government Incentives: In recent years, the Indian government has implemented several initiatives to promote electric vehicle (EV) adoption, significantly boosting sales. Some of the key measures include the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme, which offers subsidies on EV purchases, and state-level incentives like tax exemptions and registration waivers. Additionally, the expansion of EV charging infrastructure enhances consumer confidence and convenience. As rising fuel prices and environmental awareness drive interest in sustainable options, these government incentives have played a crucial role in making EVs more accessible and appealing to buyers during the festive period. 

Banking & Financial Services 
The banking and financial services sector plays a crucial role in driving the Indian economy and has consistently performed well during the October-December quarter as the demand for financial products, credit and investment services surges during this period, making this sector a top performer. 

■ Credit Growth: Consumer demand for credit products like personal loans, home loans and vehicle loans increases significantly during the festive season as people purchase homes, cars, and other high-value items. This results in higher loan disbursements for banks and non-banking financial companies (NBFCs).
■ Festive Season Financing: Banks offer attractive interest rates and flexible payment options to encourage festive purchases, especially for automobiles and home appliances.
■ Digital Banking Growth: With the rise of digital banking and financial technology services, online payments, mobile wallets and digital lending platforms see a significant uptick during the festive season, driving sectoral growth.
■ Rate Cut Prediction: With the Federal Reserve lowering interest rates, expectations are rising for the Reserve Bank of India (RBI) to follow suit with a rate cut in 2024. Such a move would likely stimulate economic growth by reducing borrowing costs, boosting consumption and encouraging investment across sectors. 

Retail and E-Commerce
The retail and e-commerce sectors, which include both brick-and-mortar stores and online platforms, experience their peak sales during the OctoberDecember period. Consumer demand for a variety of products—from fashion to electronics—escalates during the festive season, and the rise of e-commerce has only accelerated this trend. 

■ Festival Shopping: Diwali and other festivals drive consumer purchases of clothes, gadgets, home appliances and furniture. Both offline and online retailers gear up for this season by offering heavy discounts and deals.
■ E-Commerce Growth: With the advent of online shopping festivals like Flipkart’s Big Billion Days and Amazon’s Great Indian Festival, consumers increasingly prefer online platforms for convenience and discounts. Hence, e-commerce companies witness a massive surge in sales during this quarter.
■ Increased Marketing Spend: Retailers and e-commerce platforms spend heavily on marketing during this time to attract customers. Festive advertisements, influencer marketing and cash-back offers contribute to the overall boost in consumer spending.
■ Digital Payments: The proliferation of digital payments through platforms like UPI and Google Pay further fuels retail consumption, as it makes transactions seamless and convenient. 

Consumer Goods (FMCG)
The fast-moving consumer goods (FMCG) sector is one of the most resilient and consistently performing sectors in India. FMCG products encompass everyday essentials, including food and beverages, personal care items and household goods. This sector benefits significantly from India’s festival calendar.

■ Festive Season Consumption: The Indian festive season is marked by increased consumer spending, both for personal consumption and gifting. Items like snacks, beverages, personal care products and household essentials see a spike in sales.
■ Promotions and Offers: Major FMCG brands leverage the festive season to run extensive promotional campaigns. Discounts, offers and bundled deals are common strategies that drive higher sales during this period. 

Infrastructure
The infrastructure sector serves as the backbone of economic development in India, playing a crucial role in facilitating growth across various industries. This sector includes vital components like roads, highways, railways, ports, power generation and urban development, all of which are essential for the broader economic ecosystem. 

■ Post-Monsoon Construction Surge: The October-December period marks the end of the monsoon season, which typically hampers large-scale construction projects. With the rains subsiding, construction activity picks up pace, allowing for the acceleration of infrastructure projects. This surge in activity is particularly noticeable in road construction, railway projects, and urban infrastructure development.
■ Completion of Ongoing Projects: The period from October to December is crucial for infrastructure companies to accelerate the completion of projects before the financial year-end. As this quarter coincides with the third quarter of the fiscal year, both public and private sector companies focus on meeting their annual targets, leading to a ramp-up in construction and development activities.
■ Government Investment and Policies: The Indian government has consistently prioritised infrastructure development as a means of boosting economic growth. During the festive quarter, there is often an increase in the disbursement of funds for infrastructure projects under various schemes like Bharatmala, Sagarmala and Smart Cities Mission.
■ Private Sector Involvement and PPPs: The private sector plays an essential role in infrastructure development through public-private partnerships. The festive quarter is often a time when new contracts and tenders are awarded for upcoming projects, further driving growth in the sector. In addition, private companies invest heavily in real estate, industrial parks and logistical infrastructure, contributing to the overall expansion of the sector. 

Power
The power sector in India is a key driver of economic growth, providing the energy infrastructure necessary to fuel industries, households, and the overall development of the country. During the October-December period, the sector witnesses a mix of both heightened demand and supply-side improvements due to seasonal factors and ongoing infrastructure projects. 

■ Increased Industrial Demand: The October-December period typically sees a boost in industrial and commercial activity, especially after the monsoon season. Manufacturing, construction and other energyintensive industries ramp up operations, leading to higher electricity consumption. Additionally, sectors such as agriculture, which use power for irrigation and processing postharvest, contribute to the rising demand.
■ Festive Season Demand: The festive season, especially Diwali, leads to a surge in electricity consumption as homes, businesses and public places are decorated with lights and electrical appliances are in greater use. In urban areas, the increased demand from malls, commercial complexes and festive events contributes to higher power consumption. Power companies often ramp up generation to meet this seasonal spike in demand, ensuring grid stability and reliable supply. 
■ Renewable Energy Push: India’s ambitious renewable energy goals, particularly in solar and wind power, play a crucial role in the power sector’s growth. With the government’s focus on reducing dependence on fossil fuels, the addition of new solar and wind projects accelerates during this time. The favourable weather conditions post-monsoon also aid in the construction and commissioning of renewable projects. Hence, this quarter often marks the completion of several renewable energy projects, especially in states like Gujarat, Rajasthan and Tamil Nadu, which are leading hubs for solar and wind energy 

Conclusion 
In conclusion, sectors such as real estate, automobiles, banking and financial services, retail, consumer goods, infrastructure, and power have historically demonstrated substantial growth during the October to December period. Investors looking for medium-term to long-term opportunities can strategically focus on these sectors to capitalize on their potential for continued growth. However, investors must remain vigilant, acknowledging both potential risks and rewards when making investment decisions in these high-growth sectors. 

Bull markets often create an environment of excessive optimism, which can lead to speculative behaviour. This makes it imperative for investors to maintain discipline and avoid getting swept up in market euphoria. A well-structured investment strategy, underpinned by careful analysis, is crucial to weathering potential market corrections. Valuation is a particularly critical consideration, especially with stock prices in sectors such as real estate, automobiles, and power reaching new highs. Investors must conduct a thorough assessment of valuation metrics to avoid buying into overvalued stocks that could be susceptible to sudden corrections. Instead, focusing on companies with strong fundamentals, sound management, and sustainable business models that remain reasonably priced could unlock significant growth potential. 

Additionally, the upcoming September quarter earnings will be a key barometer for gauging companies' financial performance, growth trajectories, and potential capital expenditure plans, all of which can serve as indicators for future growth. As interest rates are expected to gradually decline, investors should factor in the possible positive impact on sectors such as real estate and infrastructure, which often benefit from lower borrowing costs. 

Lastly, portfolio diversification remains essential for managing risk, particularly in an uncertain global environment. Allocating investments across a range of asset classes, sectors, and geographies helps reduce the impact of market volatility while enhancing the potential for long-term returns. Building a well-balanced, diversified portfolio that is resilient to external shocks and focused on sustainable growth can be a winning strategy for investors in the coming months and beyond. Keep reading Dalal Street Investment Journal for detailed insights that will keep you updated in the ever-evolving market, helping you to capitalise on promising investment opportunities.