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Informist, Monday, Jan. 13, 2025

By Anshul Choudhary

MUMBAI – Sentiment in the market is expected to remain weak in the coming sessions after the sharp decline seen on Monday, especially the fall in small-cap and mid-cap stocks. While a further fall in large-caps is seen limited, small-caps and mid-caps can fall further due to their high valuations, analysts said.

The pessimism in the market has intensified after the US imposed sanctions on Russia, targeting their revenues from oil. These sanctions are likely to affect oil supply from Russia to India and China, Reuters reported. Brent crude oil futures surged, crossing $81 per barrel to its highest level in five months, which raised concern of further inflation in India. 

At the same time, yields in the US rose to highs of 4.80% briefly--its highest level since November 2023--after jobs added in the US in December were higher than anticipated. after this, analysts curtailed their expectation, and they now expect the next rate cut in the US to be possible only in June or thereafter, CME FedWatch Tool data showed.

Such high bond yields in the US are likely to push foreign investors to keep selling Indian equities for now, who consider US bond yields much safer than equity markets of emerging economies, such as India. Foreign institutional investors net sold equities worth INR 10.20 billion on Friday. With this, they have net sold equities worth nearly INR 222 billion so far this month till Friday.

The Nifty 50 closed at 23085.95 points and the Sensex closed at 76330.01 points, down 1.5% and 1.4%, respectively. The fall was even sharper in small-cap and mid-cap stocks with the Nifty Smallcap 250 and Nifty Midcap 150 falling 4% each. Losses were spread across the sectors with nearly 90% of the stocks traded on the NSE ending lower.

"First quarter (Jan-Mar) is likely to be volatile due to global uncertainties," Seshadri Sen, head of research at Emkay Global Financial Services, said, while pointing to uncertainty over policies by Donald Trump, who will take charge as the US president on Jan. 20.

Apart from global risks related to interest rates and crude oil, analysts are worried about high stock valuations across mid-caps and small-caps as the earnings slowdown may continue for some time. "...large-cap stocks may hold up better in the next few months while mid-cap, small-cap and 'narrative' stocks will see further severe correction if the alignment to fundamentals and value were to continue. There is no reason to expect otherwise," Kotak Institutional Equities said in a note.

However, all hope is not lost, at least for large-caps. Sen said the muted earnings growth for this financial year at least is now priced into stock prices. He said market sentiment may improve from April, once there is a clarity on policies by Trump and outflow by foreign investors slows down.

Going forward, analysts expect the pace of decline to come down as the Nifty 50 has already fallen nearly 12% from its lifetime high. They expect the Nifty 50 to find support at 23900-23800 points and face resistance at 23250-23000 points.

Among major earnings, the market is likely to react to the earnings of HCL Technologies, which will come out Monday after market hours. Among others, HDFC Asset Management Co. will report its December quarter earnings on Tuesday.  End

US$1 = INR 86.58

Edited by Akul Nishant Akhoury

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