The Indian equity benchmarks staged a robust recovery on Friday, propelled by a surprise monetary policy easing from the Reserve Bank of India (RBI). The central bank's decision to lower the policy repo rate by 25 basis points to 5.25% acted as the primary catalyst, injecting fresh optimism into the market and helping indices recoup weekly losses.
Market Closes Higher on Rate Cut Boost
By the closing bell, the Sensex settled at 85,712.37, marking a significant gain of 447.05 points or 0.52%. The broader Nifty 50 index climbed to 26,186.45, rising by 152.7 points or 0.59%. In the weekly review, however, the performance was mixed. The BSE benchmark eked out a minor increase of 5.7 points, while the Nifty 50 registered a marginal decline of 16.5 points.
The rate reduction is seen as a significant stimulus for the economy. Lower interest rates decrease borrowing costs for both consumers and businesses, stimulating demand for loans and reducing funding expenses for lenders. This environment is particularly beneficial for banks and non-banking financial companies (NBFCs). Furthermore, more affordable loans enhance purchasing power for big-ticket items like automobiles and homes, giving a fillip to related sectors.
Analysts Eye Santa Claus Rally and Key Resistance
Market experts believe the RBI's dovish move, coupled with the potential for a rate cut by the US Federal Reserve in the following week, could spark a short-term rebound. This seasonal upswing is often referred to by analysts as a "Santa Claus rally." Dharmesh Shah, Vice President at ICICI Securities, provided a detailed technical outlook.
Shah noted that the index extended its consolidation near all-time highs for the third consecutive week, ending flat at 26,186, as a depreciating rupee weighed on sentiment. Broader markets underperformed, with Midcap and Smallcap indices falling 0.80% and 2% respectively. Sectorally, beaten-down IT stocks roared back with gains exceeding 3%, supported by traction in auto and metal stocks, while PSU banks took a breather.
"A decisive breakout above 26,300 could recharge the rally and set the stage for 26,800 in the coming weeks," Shah stated. He added that the lack of follow-through strength above 26,300 might lead to prolonged consolidation in the 26,300-25,700 range amid elevated volatility ahead of key global events. He advises investors to use dips to accumulate quality stocks, with key support placed at 25,700.
Sectoral Focus and Stocks to Watch
On the sectoral front, rate-sensitive sectors like Banking, Auto, and Realty are expected to remain in focus following the RBI's policy outcome. Meanwhile, sectors like IT, Pharma, and Oil & Gas are anticipated to regain upward momentum. Shah also highlighted that the Nifty Midcap index has been consolidating after hitting a fresh peak, and a ratio chart pattern suggests a potential breakout that would confirm midcap outperformance in the coming weeks.
In terms of stock recommendations, Dharmesh Shah of ICICI Securities recommends buying Larsen & Toubro (L&T). He suggests buying shares in the range of ₹3,980-4,050, with a price target of ₹4,520 and a stop loss set at ₹3,798.
Key Monitorables for the Upcoming Week
The market trajectory will be influenced by several critical events in the upcoming week:
- US–India Trade Talks: A visiting US trade delegation could unlock breakthroughs, potentially boosting sentiment and attracting Foreign Institutional Investor (FII) flows.
- US Federal Reserve Rate Decision: The outcome is keenly awaited by global markets.
- India's Consumer Price Index (CPI) Print: Domestic inflation data will be scrutinized.
- US Dollar and Rupee Movement: A confirmed weakening trend in the US Dollar Index bodes well for emerging markets. The Indian Rupee is approaching a critical technical level, indicating a potential trend reversal that could revive market sentiment.
Disclaimer: The views and recommendations are those of individual analysts. Investors are strongly advised to consult certified experts before making any investment decisions, as market conditions can change rapidly.
