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Informist, Friday, Dec. 6, 2024

By Alina Geogy

MUMBAI – The benchmark indices are expected to resume their upward move next week after the breather Friday. The Reserve Bank of India's move to boost liquidity in the banking system through a cut in the cash reserve ratio of banks is expected to keep sentiment buoyant, analysts said. Recent buying in the market by foreign institutional investors and expectations that the US Federal Reserve could cut rates again later this month are also expected to boost sentiment, according to analysts. However, worries about persisting high valuations in select sectors may keep the gains in check.

On Friday, the RBI cut the CRR of banks by 50 basis points to 4.00% on concerns of a slowdown in GDP growth. The sizeable CRR cut is welcome, Anubhuti Sahay, head of India Economic Research, Standard Chartered, said in a note. "As per our estimates, it is likely to neutralise the expected liquidity deficit for the remainder of FY25.... As of now, our sense is the CRR cut is likely to assuage concerns for the remainder of the year on liquidity." The reduction in CRR led to a rise in several banking stocks Friday as the move is expected to boost the liquidity in the system. The cut is expected to release primary liquidity of about INR 1.16 trillion into the banking system.

The Monetary Policy Committee kept the policy repo rate unchanged at 6.50% and retained the 'neutral' policy stance. It also lowered the GDP growth forecast for the financial 2024-25 (Apr-Mar). Although the GDP forecast has been revised downwards, the guidance for FY26 remains optimistic, V.R.C. Reddy, head of treasury, Karur Vysya Bank, said in a note. The short-term moderation in growth, alongside a benign inflation outlook for the next fiscal year, reinforces the likelihood of a rate cut in February, Reddy said.

On Friday, the Nifty 50 and the BSE Sensex each ended 0.1% lower at 24677.80 points and 81709.12 points, respectively. Now, the Nifty 50 is expected to find support at 24550 points and face resistance at 25000 points.

Automobile stocks, which were among the top gainers in the Nifty 50 on Friday, may rise further next week, extending gains for the second consecutive week. Expectations that festive demand may boost earnings in the December quarter are likely to lead to the gains, analysts said. Demand in the passenger vehicle segment has so far remained soft, and sales of sport utility vehicles have also moderated on year due to a higher base, Arun Agarwal, vice-president for equity research, Kotak Securities, said. Shares of automakers Tata Motors, Bajaj Auto, and Maruti Suzuki were among the top gainers in the Nifty 50 index Friday.  

However, gains in shares of domestic carmakers may be capped as some analysts have pointed to a slowdown in the global passenger vehicle industry. The global outlook for the sector for 2025 is subdued, but the decline is not expected to be as steep as in 2024, not to mention signs of positive growth in certain segments, Nuvama Institutional Equities said. A muted outlook for passenger vehicles does not augur well for Tata-JLR, it said. Meanwhile, the subdued outlook for commercial vehicles and construction equipment does not augur well for exporters such as Bharat Forge, Ramkrishna Forgings, and Samvardhana Motherson International, brokerage Nuvama Equities said. However, these firms should outpace industry on orders and diversification efforts, it said.

Foreign institutional investors have been net buying domestic equities for the past three sessions. While market watchers cheered the trend reversal in FII sales seen for around two months, they said they would be watchful for FII data over the coming days. Foreign portfolio investor inflows in the near future are expected to remain volatile, Shrikant Chouhan, head of equity research at Kotak Securities, said in a note. "Indian equity markets were among the better performers among global markets, as investor positioning turned hopeful of a speedy economic recovery after a weak Q2FY25 (Jul-Sept) GDP growth print", he said.  End

Edited by Rajeev Pai

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