The Indian stock market has shown a slight upward movement but continues to face significant challenges. Weak economic data, particularly slower-than-expected GDP growth, combined with global and domestic uncertainties, have left investors adopting a cautious stance. Tradex.live, the best CFD brokers in India points to three major near-term triggers for market performance: the Reserve Bank of India’s (RBI) monetary policy decisions, the upcoming Q3 earnings season, and the potential for a pre-budget rally.
Indian Economy and Stock Market Snapshot
On Monday, December 2nd 2024, Indian stock indices opened flat, reflecting mixed investor sentiment. The Nifty 50 showed modest gains, starting 9 points higher at 24,140. Meanwhile, the Sensex opened slightly lower at 79,743.87, declining by 58 points. Despite these early gains, selling pressure persisted, triggered by weaker-than-expected GDP growth figures.
In Q2 FY25, India’s GDP growth slowed to 5.4%, marking a two-year low and falling short of the projected 6.5%. Real Gross Value Added (GVA) also demonstrated a sharp deceleration, growing at 5.6%, down from 7.7% in the same quarter last year. This economic slowdown is weighing on market sentiment as investors brace for further volatility.
1. RBI Monetary Policy and Interest Rate Outlook
The Reserve Bank of India’s upcoming monetary policy meeting, scheduled for December 4-6, 2024, is a critical focus area. The RBI has maintained the repo rate at 6.5% since February 2023. However, discussions around a potential rate cut have gained traction, especially given global trends of declining interest rates.
Rate Cut Possibility
Analysts are divided over whether the RBI will reduce rates at this meeting or postpone action to February 2025. While inflation remains above the RBI’s tolerance level at 6.2%, the broader economic slowdown has amplified calls for rate cuts to stimulate growth.
Dr. V. K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, suggested that the RBI might cut the Cash Reserve Ratio (CRR) rather than the repo rate, as the Monetary Policy Committee (MPC) may prioritise inflation control. Meanwhile, Prashanth Tapse, Research Analyst at Mehta Equities, expressed optimism about a potential 25-50 basis points rate cut before the budget, emphasising that a reduction could support economic activity and boost investor sentiment.
Even if a rate cut does not materialise immediately, a dovish stance or liquidity-friendly guidance from the RBI could provide some relief to both equity and debt markets.
2. Q3 FY25 Earnings Season: Hopes for Recovery
The quarterly earnings season for Q3 FY25 will kick off in mid-January 2025, led by large-cap IT firms like TCS and Infosys. After disappointing Q1 and Q2 earnings, market participants are cautiously optimistic about a mild recovery in Q3.
Festive Boost and Sectoral Performance
Dr. Vijayakumar noted that festival season sales could contribute to a moderate earnings rebound in Q3. However, he cautioned that a more significant recovery may not occur until Q4 FY25, provided inflationary pressures ease and the RBI implements rate cuts in February.
Prashanth Tapse echoed this sentiment, highlighting that Q3 earnings could serve as an important confidence booster for investors, but challenges persist due to elevated valuations and slowing growth across sectors.
3. Pre-Budget Rally: A Cautious Approach
As the market looks ahead to the Union Budget for FY26, to be presented on February 1, 2025, discussions around a potential pre-budget rally have emerged. Historically, the Indian stock market often witnesses heightened activity in anticipation of budget announcements. However, experts are sceptical about the likelihood of a strong rally this time.
Sectoral Focus
Prashanth Tapse expects the budget to prioritise key sectors such as insurance and defence, given the government’s focus on growth-oriented reforms. However, elevated valuations and decelerating growth may limit the extent of a pre-budget rally, according to Dr. Vijayakumar. He pointed out that any market momentum will hinge on factors such as earnings performance and clarity on monetary policy.
Global and Domestic Challenges
In addition to domestic factors, global economic trends are influencing market dynamics. Persistent inflation in the US, coupled with robust economic momentum, has led to expectations of continued monetary tightening by the Federal Reserve. The release of the US Personal Consumption Expenditures (PCE) index, a key inflation gauge, further underscores these concerns.
On the domestic front, the Indian market faces uncertainties stemming from geopolitical developments, tariff threats, and mixed corporate performance. These factors are adding to the overall cautious outlook.
Key Takeaways for Investors
- RBI’s Policy Decision: Investors should monitor the RBI’s monetary policy announcement on December 6, 2024, for signals on interest rate adjustments or liquidity measures. Any indication of a rate cut or dovish stance could positively impact markets.
- Q3 Earnings Season: The upcoming quarterly results will be a crucial determinant of market sentiment. A recovery in corporate earnings could provide a much-needed boost to investor confidence.
- Budget Expectations: While the budget announcement in February 2025 could bring sectoral opportunities, a full-fledged rally appears unlikely without supportive economic or policy developments.
Outlook
The Indian stock market faces a challenging landscape characterised by slowing economic growth and global headwinds. However, key policy decisions and earnings results in the coming weeks could influence market trajectory significantly. Investors are advised to maintain a cautious approach, focusing on long-term fundamentals while staying alert to short-term triggers such as the RBI policy meeting, Q3 earnings, and budget developments.
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