Vijay L. Bhabwani's Ticker: Bulls display guarded optimism

Subscribe to enjoy similar stories. Dear reader, Last week, I wrote about the possibility of higher volatility due to the expiry of the March derivatives series. I also put forth my hypothesis that institutional players would be a dominant reason for markets to witness stability and/or upthrust.

Both these hypotheses were validated by the markets. Headline indices gained and public sector undertaking (PSU) stocks saw a rise in trader participation along advocated lines. Now that the usual year-end pull-push effect is done and dusted, the process of price discovery can begin.

I have been advocating procyclicality (when financial asset prices move in unison with economic outlook) for calendar 2025. I have also been warning you about the rising cost of funds as advocated by Dick Stoken in his three best-selling books written in the 1980s and 1990s. These are the benchmarks for the cost of funds and its impact on financial markets.

Banking and financial sector stocks will remain in the limelight due to various reasons. Firstly, they command a weightage of ~34% in the Nifty-50. That is the single highest weightage enjoyed by any sector in the index.

It is also higher than the next three sectors combined. Secondly, the RBI’s (Reserve Bank of India) MPC (monetary policy committee) will announce its interest rate decision on 9 April, 2025. Price activity on leading banking counters coupled with Indian 10-year sovereign bond yields seem to indicate high optimism over a rate cut.

That is what has led the markets and particularly the banking and financial sector stocks higher last week. Besides, no rally in the markets is possible without pushing banking stock prices higher. So, institutional players bought banking stocks last