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Informist, Thursday, Jan. 2, 2025

MUMBAI – The current optimism about better corporate earnings growth in Oct-Dec and a likely pick-up in the government's capital expenditure are expected to keep investor sentiment positive towards the domestic market in the near term, analysts said. They also expect economic growth to gain momentum in the next few months. However, a section of analysts said the pace of government spending may miss the Street's view in the remainder of the financial year and also fall short of the annual target.

Looking at the surge in the market Thursday, it appears that foreign investors were buying aggressively, a senior research analyst at a domestic broking firm said. They were net sellers for about four months till December and were also increasingly adding short positions in index futures amid expensive valuations and other near-term unfavourable factors. However, some derivatives analysts said traders rushed to cover their short positions ahead of the weekly expiry of the Nifty 50 options contracts Thursday amid the recent rise.

On Thursday, the Nifty 50 closed 1.9% higher at 24188.65 points and the Sensex ended 1.8% higher at 79943.71 points. The near-term support for the Nifty 50 is pegged at 24100-24000 points and resistance at 24300-24400 points, derivatives analysts said. Investors await a series of global economic data Thursday, including the US Manufacturing Purchasing Managers' Index and the US unemployment insurance weekly claims report.

Experts expect automobile stocks to rise further on the back of strong sales data from December. Auto stocks gained the most Thursday, with shares of most large-cap companies soaring following the release of robust sales figures.

The focus will soon shift to the quarterly earnings season which will begin next week. While significant improvement is not expected in earnings growth for the December quarter, analysts expect management comments and business outlook for the upcoming quarters to be positive. In Jul-Sept, top-line growth of large-cap companies had slowed to a 15-quarter low and net profits had fallen to an eight-quarter low, according to a corporate performance review by the National Stock Exchange. This followed a series of downgrades in earnings estimates, which made foreign investors pull out their profits and switch focus to other markets such as the US and China. The likely economic boost under incoming US president Donald Trump and stimulus measures announced by China led to the sharp outflows seen in the last three months of 2024.

For fast-moving consumer goods players, Nomura Global Markets Research anticipates demand in the December quarter to have been weaker than expected. "We believe overall consumer demand and volumes in 3Q (Oct-Dec) remained weak as urban demand remains impacted due to low wage growth and high inflation across categories such as housing and food," the broking firm said in its research report. It expects rural demand to continue to improve, backed by an above-average monsoon and a good kharif harvest. In 2023, FMCG companies had posted a poor performance owing to the weak monsoon, lower volumes, and poor rural demand.

For financial players, net interest margins are expected to remain under pressure due to slow growth in unsecured lending, rising costs, and an elevated credit-deposit ratio, which are likely to constrain credit growth, Motilal Oswal Financial Services said in its report. "We are closely monitoring the potential shift in the interest rate cycle and the pace of monetary easing, as these factors will significantly influence margin trends," it said. On Thursday, banking and financial services stocks were among the top performers that pushed benchmark indices sharply higher.  End

Edited by Rajeev Pai

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