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Informist, Friday, Dec. 20, 2024

By Anjana Therese Antony

MUMBAI – The domestic stock market is expected to see some more losses in the near term on the US Federal Reserve's hawkish comments on future interest rate cuts. Though the Fed reduced key interest rates by 25 basis points to 4.25-4.50%, in line with expectations, it said the pace of future rate cuts would be slower than anticipated. The Summary of Economic Projections showed that a reduction of 50 bps is seen in rates in 2025, against the previous guidance of 100 bps. Also, trading volumes in India are expected to decline as foreign institutional investors will be away for the Christmas holiday, which is generally the trend every year, analysts said. 

The Fed reiterated that the economic outlook is uncertain and it is strongly committed to bringing inflation towards its 2% target. The cautious outlook pulled Indian equities sharply lower for the second consecutive session Friday, snapping a four-week winning run. Adding to the market's woes were expensive valuations, depreciation of the rupee, and continuing foreign investor outflows.

FIIs were net sellers this week till Thursday and were likely sellers Friday, too, analysts said. They are also adding short bets on index futures, hinting at their bearish approach towards the domestic market. Analysts and fund managers have raised concerns about the stretched valuation, which has been keeping foreign investors from making fresh investments in the market. 

The market lost most of the gains it made in the previous four weeks. The Nifty 50 and the BSE Sensex each ended 1.5% lower at 23587.50 points and 78041.59 points, respectively. The immediate support of the Nifty 50 is seen at 23500-23450 points and resistance at 23680-23730 points, a derivatives analyst at a domestic broking firm said.

Though information technology was among the sectors that felt the heat of the caution in the US, analysts are optimistic that the macroeconomic scenario will be better in the coming quarters. The upward revision of revenue growth guidance by Accenture to 4-7% for 2024-25 (Sept-Aug) from 3-6% earlier is expected to boost hopes for the domestic IT sector. Domestic IT players have huge exposure to the US, with more than half of their revenues coming from US clients. Motilal Oswal Financial Services said the upward revision of guidance by Accenture underscored the improving backdrop for Indian IT players in 2025.

Investors will closely watch the outcome of the Goods and Services Tax Council's meeting Saturday. The GST Council is expected to consider reducing the rates on health and life insurance premiums, rationalise the rates on a plethora of items, and decide on the future of the GST compensation cess.

Analysts are also expecting the government's capital expenditure to gain traction in Oct-Mar, which could boost several sectors, including defence, cement, engineering, and other construction-related sectors. For cement companies, analysts believe pricing pressures have bottomed out and they expect stable-to-gradual increase in prices going forward. 

The focus will now turn to the December quarter earnings, which will start coming in from next month. Though a significant improvement in earnings growth is not expected, analysts are optimistic about the quarters to come. Investors will also keep an eye on the policy changes under Donald Trump after he takes over the White House in mid-January.  End

Edited by Rajeev Pai

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