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Informist, Thursday, Dec. 19, 2024

By Anjana Therese Antony

MUMBAI – It is likely that the shock from the US Federal Reserve's monetary policy outlook will continue to weigh on sentiment for a few more sessions. For a market which was betting on faster reduction in interest rates in the US, the cut in guidance to a 50-basis-point cut in rates in 2025 from the earlier view of a 100-bps reduction came as a shocker. US Fed Chairperson Jerome Powell sounded cautious about inflation which may take one or two years to return to the apex bank's target of 2%. Though the Fed met global investors' expectation of a 25-bps cut to 4.25-4.50%, its hawkish outlook pulled down markets across the globe, including India.

The Nifty 50 ended 1% lower at 23951.70 points and the BSE Sensex closed 1.2% lower at 79218.05 points. The near-term support for the 50-stock index is pegged at 23900-23870 points and resistance at 24000-24150 points, according to technical and derivatives analysts at two broking firms. The equity market has seen major corrections since October, primarily due to foreign investor outflows, poor corporate earnings growth, downgrades in earnings estimates, geopolitical tension in West Asia, depreciation of the rupee, and expensive valuations. 

However, investors are increasingly betting on the Indian government's capital expenditure cycle, which is expected to gain traction in the remaining part of FY25. Though the domestic economic growth saw a faster-than-expected slowdown in the September quarter, experts believe that the growth will improve in the medium term. This will be led by investments and rural consumption in 2025, indicating growth in the industrial, manufacturing, real estate, and allied segments, HDFC Securities said in its outlook report. The broking firm expects India's GDP to grow at 6.4% in 2024-25 (Apr-Mar), slightly lower than the Reserve Bank of India's estimate of 6.6%. 

India's consumer inflation is also expected to moderate in the current financial year, along with food inflation on better kharif and rabi crops, HDFC Securities said. It expects inflation to average 4.8% in FY25 and soften further to 4.0-4.2% in FY26. There is also optimism that the Reserve Bank of India will start the rate cutting cycle in February with a 25-basis-point reduction in the repo rate in February, assuming that inflation softens. 

Expensive valuations across sectors have been weighing on the stock market and experts believe that stocks should fall more in order to attract FIIs to make fresh buys. Some fund managers said returns from the domestic equity market in the current financial year would be less than the 10-year average. 

The likely slower rate cuts in the US could impact Indian IT companies, which earn a majority of their revenue from US clients. Some broking firms have a 'neutral' view on the sector. However, the demand scenario is expected to be better in FY26, led by the banking, financial services, and insurance segments and strong traction from artificial intelligence-related deals. 

For the banking space, the impact of the reduction in cash reserve ratio is expected to kick in during Jan-Mar, which would help compress net interest margins. Earlier, banks were impacted by the contraction in NIMs and a wide gap between growth in credit and deposits. The likely reduction in the repo rate will help banks perform better, analysts said. 

The focus will also shift to news flow related to the Budget, scheduled for Feb. 1, and likely capital allocations for various sectors. Reports said stock exchanges will discuss keeping the market open during the Budget presentation, which will be on a Saturday.  End

Edited by Saji George Titus

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