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The Indian stock market, represented by the benchmark indices Nifty 50 and BSE Sensex, experienced a significant downturn in the week ending January 10th, 2025. This decline, exceeding 2 percent for the benchmark indices and considerably more for broader markets, was attributed to several factors. These include a downward revision in full-year GDP growth estimates, escalating oil prices, consistent selling by Foreign Institutional Investors (FIIs), rising US bond yields, and a strengthening US dollar index. The upcoming change in US presidential administration further contributed to market uncertainty. This sharp correction has set the stage for a period of consolidation in the upcoming week, beginning January 13th, 2025.
The upcoming week's market performance will hinge on several key factors. Prominently, Q3 earnings announcements from major Indian companies will be closely scrutinized. These companies, including Reliance Industries, Infosys, HCL Technologies, Tech Mahindra, Wipro, Kotak Mahindra Bank, and others, represent a significant portion of the Nifty 50 index's weight. The early positive results from TCS provide a degree of optimism for the IT sector. In addition to large-cap companies, numerous mid-cap and small-cap companies will also release their quarterly earnings, adding to the overall stock-specific activity.
Macroeconomic data will play a pivotal role in shaping market sentiment. India's CPI inflation rate for December 2024, scheduled for release on January 13th, will be crucial, influencing market direction and impacting expectations ahead of the RBI's February policy meeting. Most economists anticipate a further decline in inflation. Alongside CPI, the WPI inflation data for December, expected to increase from the previous month, will be released on January 14th. Further economic indicators like the balance of trade for December (January 15th), bank loan and deposit growth (January 17th), and foreign exchange reserves (January 17th) will provide additional insights into the economic health of India. A consistent decline in forex reserves since September 2024 is a matter of concern.
Global macroeconomic factors will also significantly influence the Indian market. The US inflation numbers for December 2024 will be closely followed, as these figures directly impact the Federal Reserve's interest rate decisions. Strong US jobs data have already suggested a potential pause in the interest rate cycle. Alongside the inflation data, other key US economic indicators such as PPI, retail sales, housing starts, industrial production, and weekly jobs data will provide further insights into the US economic outlook. These indicators directly affect FII flows into the Indian market.
China's economic performance, specifically its GDP numbers for the October-December 2024 quarter, is another key factor. Analysts predict a GDP growth rate around 5 percent, following a slight decline in the previous quarter. In addition to China's GDP, other global economic indicators, including inflation data from Europe and the UK and vehicle and retail sales data from China, will be closely monitored. The behavior of FII and DII flows will continue to be crucial. FIIs remained net sellers last week, while DIIs offset these sales substantially.
Oil prices, which have been on an upward trend for three consecutive weeks due to US sanctions on Russian oil, colder weather in the US and Europe, and anticipated increased Chinese consumption, will be a key driver of inflation and market sentiment. Brent crude futures have surpassed significant technical levels, signaling a positive trend, but the price volatility remains a substantial risk for the economy. The upcoming IPOs and listings add to the week's events, with multiple initial public offerings (IPOs) and listings scheduled across different segments of the market. The IPO market is expected to remain busy next week.
Technically, the market displays a bearish sentiment, with the Nifty reaching its lowest level since June 2024. The index closed below key technical indicators, suggesting a negative bias. While downside targets are identified, the possibility of recovery remains dependent on overcoming crucial resistance levels. The weekly derivative data suggests a short-term trading range for the Nifty index. Options data indicates substantial open interest at various strike prices, implying investor positioning. Finally, the India VIX, a measure of market volatility, has increased, signaling caution among investors.
In conclusion, the upcoming week in the Indian stock market presents a complex interplay of domestic and global factors. The release of Q3 earnings, macroeconomic data, and global economic indicators will significantly impact market direction. The behavior of FII and DII, oil price fluctuations, technical factors and numerous IPOs will play vital roles in influencing the overall market trajectory. The prevailing market uncertainty suggests the need for careful analysis and risk management for investors navigating this dynamic environment.