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The Indian stock market experienced a downturn on December 12th, with the Sensex and Nifty indices declining amidst anticipation of the release of India's Consumer Price Index (CPI) data and the weekly expiry of derivatives contracts. This downward trend was further exacerbated by underperformance in key sectors, including energy and auto, creating a sense of uncertainty and market volatility. The broader market also felt the pressure, with the BSE Midcap and Smallcap indices experiencing significant drops of 0.6 percent and 1 percent respectively, reversing their recent positive trajectory. This decline highlights a shift in investor sentiment, moving away from the recent outperformance of mid-cap and small-cap stocks.
The impending CPI data release played a significant role in shaping market sentiment. Investors are keenly awaiting this information to assess the current inflationary pressures within the Indian economy. The anticipated data is considered crucial in determining the short-term direction of the market, with a high degree of uncertainty surrounding the immediate future. Furthermore, the concurrent expiry of weekly derivatives contracts introduced additional market instability, contributing to the overall decline. The combination of these factors led to a cautious approach by many investors, resulting in increased selling pressure.
While some sectors experienced substantial losses, the Nifty IT index bucked the trend, exhibiting robust performance with a gain exceeding 1 percent. This positive performance was primarily attributed to the in-line US inflation data, bolstering expectations of a potential Federal Reserve rate cut in the coming week. A rate cut by the Fed would generally be viewed favorably by Indian IT companies, as a significant portion of their revenue stream originates from US clients. This sector's resilience provided a stark contrast to the struggles faced by other sectors, highlighting the differentiated impact of macroeconomic factors across different industries.
The oil and gas sector suffered a decline of 0.5 percent, largely impacted by reduced performance from major players like Reliance Industries (RIL), ONGC, and BPCL. This downturn is partly explained by the Emkay Global report from November 17th which indicated a deteriorating outlook for the Indian City Gas Distribution (CGD) sector, primarily due to government-mandated cuts in Administered Price Mechanism (APM) gas allocations. This sector-specific challenge contributed significantly to the overall weakness in the energy sector.
The auto sector also experienced significant downward pressure, with a 0.9 percent decline. Key players such as Tata Motors, Maruti Suzuki, and Eicher Motors were major contributors to this decline, indicating broader weakness within the industry. This could be attributed to various factors, including changing consumer demand, supply chain challenges, or broader macroeconomic conditions affecting consumer spending. Similarly, the Fast-Moving Consumer Goods (FMCG) sector showed a decline of 0.8 percent, with Hindustan Unilever (HUL), Tata Consumer, and ITC accounting for a significant portion of the losses. This suggests a potential slowing in consumer spending across certain FMCG product categories.
Expert opinions provide further insight into the current market situation. Analysts like Ruchit Jain from Motilal Oswal Financial Services highlighted the overbought nature of the mid-cap and small-cap space, suggesting a more prudent 'buy on dips' strategy for these segments. This assessment reinforces the idea that the recent outperformance of these sectors might have been unsustainable in the short-term. Meanwhile, V K Vijayakumar from Geojit Financial Services described the market's consolidation and the ongoing bull run in the US market, suggesting a continuation of the range-bound trend.
The US inflation data, which came in line with expectations, played a significant role in influencing global market sentiment, especially regarding the anticipated Federal Reserve rate cut. This event is largely seen as a pivotal factor influencing the direction of the Indian IT sector, as its reliance on US clients makes it sensitive to US monetary policy. The high probability of a 25-basis-point Fed rate cut, as indicated by the CME FedWatch Tool, further reinforces the positive outlook for this sector.
Technical analysis, as presented by Shrikant Chouhan from Kotak Securities, provides additional perspective on the current market situation. The indecisive nature of the market, as evidenced by the small candle formation on daily charts, suggests a wait-and-see approach among traders. The support and resistance levels identified by Chouhan provide further guidance on potential future market movements, which highlights the importance of monitoring market conditions and reacting strategically to the changes.
In conclusion, the Indian market experienced a mixed performance on December 12th, influenced by the pending CPI data, weekly F&O expiry, and sector-specific dynamics. While the IT sector demonstrated resilience, other sectors such as energy and auto faced significant challenges. Expert opinions suggest a period of consolidation and potential for tactical adjustments in the mid-cap and small-cap space. The upcoming CPI data remains a pivotal factor influencing the short-term trajectory of the market. The interplay of domestic and global factors, including the anticipated Fed rate cut, continues to shape the overall landscape of the Indian stock market.
Source: Sensex, Nifty decline ahead of India CPI data, weekly F&O expiry; energy, auto stocks drag