Indian equity markets are expected to move within a defined range during a holiday-shortened week, with analysts pointing to the trading activity of foreign investors, currency fluctuations, and crucial macroeconomic data as the primary drivers of sentiment.
Key Domestic and Global Triggers in Focus
This week marks the beginning of the year-end festive season, and trading volumes are likely to be muted due to the Christmas holiday. The domestic stock market will remain closed on Thursday, December 25, for Christmas. On the domestic front, market participants will track data points such as infrastructure output, bank loan and deposit growth, and foreign exchange reserves.
"Currency movement and crude oil prices will also remain important variables," said Ajit Mishra, SVP of Research at Religare Broking Ltd. He added that globally, the performance of major markets, especially the United States, will be closely watched for directional cues.
FPI Inflows: A Potential Catalyst for Markets
The behavior of Foreign Portfolio Investors (FPIs) is under intense scrutiny. Ponmudi R, CEO of Enrich Money, noted that while strong domestic liquidity has provided a buffer against deeper declines, the return of sustained foreign fund inflows is increasingly seen as a potential catalyst for the market's next upward move, which would improve overall risk appetite.
This view finds support in recent activity. Last week, selling pressure dominated most sessions, but a recovery on the final trading day, fueled by value buying and renewed FPI interest, helped curb losses. The benchmark indices had a mixed week, with the BSE Sensex declining by 338.3 points (0.39%) and the NSE Nifty dipping by 80.55 points (0.30%). However, on Friday, the Sensex jumped 447.55 points to settle at 84,929.36, and the Nifty climbed 150.85 points to 25,966.40.
Global Cues and Earnings Season Ahead
The sustainability of this late-week momentum, according to analysts, hinges on key global macroeconomic indicators. Upcoming US data, including Gross Domestic Product (GDP) and core Personal Consumption Expenditure (PCE) figures, are critical. These releases are expected to offer deeper insights into the health of the US economy amidst evolving inflation and growth dynamics.
"Market sentiment has turned more constructive after lower-than-expected US inflation data revived expectations of further monetary easing by the US Federal Reserve—an environment that has historically been supportive for emerging market equities, including India," added Ponmudi R.
Siddhartha Khemka, Head of Research at Motilal Oswal Financial Services Ltd, expects markets to trade in a range with a positive bias this week, citing improving FII participation and a marginal recovery in the Indian rupee against the US dollar. He also pointed out that investor focus will gradually shift towards the upcoming third-quarter corporate earnings season.
With several global markets witnessing subdued activity due to Christmas and New Year holidays, domestic triggers and foreign investor actions are likely to play an outsized role in determining market direction in the days ahead.
