The Indian stock market has recently demonstrated remarkable resilience, exhibiting a bounce back from periods of consolidation led by uncertainty by economic slowdown and premium valuations. This recovery is a testament to the market’s inherent strength. One of the catalysts for the recent market relief has been the easing of geopolitical tensions. The reduction in conflicts, particularly in the Middle East, has led to a significant decline in Brent crude prices to the year’s threshold level of $70. This decrease in oil prices is a boon for Indian fiscal and companies, as it helps improve their operating metrics by reducing input costs.
Tactically, a small recovery in the trend of FII net inflow from heavy sellers in the months of October & November to a small buyer in December has become a blessing for the domestic market. The MSCI rebalancing has played a pivotal role in attracting foreign investments, providing a much-needed boost to the domestic market. Expectations of stable government spending in the second half of FY25 and stronger central govt have further bolstered market confidence. Investors are optimistic that continued government expenditure will support economic growth and infrastructure development. Henceforth, earnings are expected to foresee a QoQ growth compared to the fall in Q1 & Q2, FY25.
With optimism the Investors are closely monitoring US inflation indicators, which will influence central bank’s policy rates in December. Global economic trends and policy decisions will continue to influence the Indian market. FED Chair speech and recent minutes, which show confidence in the easing of inflation, could sway market sentiments positively. Although the effects of US policies under the new administration remain uncertain, the minutes suggest a probable continuation of the rate easing cycle. The stability of the market will largely depend on the steadiness of incoming economic data, which expect a cut in December this month followed by 100 to 150 bps cut in 2025.
The domestic rally has been broad-based, but growth and capex-linked sectors such as reality, consumer durables, metals, infrastructure, capital goods, and manufacturing are outperforming. These sectors have benefited from the anticipation of a surge in new order inflows, driven by increased GoI spending and private sector investments. The positive performance of these sectors underscores the market’s confidence in the long-term growth prospects of the Indian economy.
In India, the Monetary Policy Committee (MPC) has maintained its current stance and revised the GDP growth forecast downward, as expected acknowledging the recent slowdown. The market well accepted the cut which was not below the 6.5%. Inflation is expected to persist in Q3FY25 but should ease in Q4FY25 due to seasonal corrections and agricultural outputs. Despite these challenges, the Indian economy remains strong, capable of achieving sustainable growth and stable inflation in the medium term. The RBI has committed to policy support if the slowdown continues and has reduced the Cash Reserve Ratio (CRR) by 50bps to 4%, injecting ₹1.16 lakh cr into the banking system to enhance liquidity and support credit growth, which is positive for banks and rate sensitives like reality & durables.
To sum up, the Indian market’s recent performance highlights its resilience and potential for growth. The easing of geopolitical tensions, positive earnings prospects, and supportive policy expectations have collectively bolstered investor confidence. As the market navigates through economic challenges and anticipates key domestic and global policy decisions, the outlook remains cautiously optimistic. Investors are advised to stay informed and adopt a diversified approach to capitalize on the evolving market dynamics with a multi cap approach and sectors like IT, Pharma, Textiles, renewables, FMCG and manufacturing.
First published in Mint.