Macro Data To Set The Tone For Market Direction

The Q3 earnings season will pick up pace in the week with Reliance Industries, Infosys, HCL Tech, Axis Bank, Tech Mahindra, LTIMindtree, Jio Financial among a host of companies due to report their quarterly results

Spooked by concerns over India’s economic slowdown, subdued Q3 corporate earnings projections, persistent FII sales on the back of weak rupee and mixed global markets; the domestic stock market indices posted their worst performance in more than two months, falling between 2.5-6 per cent. BSE Sensex lost 1,844.2 points, or 2.32 per cent, closing at 77,378.91, while the Nifty plunged 573.25 points, or 2.38 per cent, settling at 23,431.50. The BSE Mid-cap index declined 5.7 per cent, and the BSE Small-cap index fell by 6 per cent. On the sectoral front, only the BSE Information Technology index posted gains, rising one per cent, while all other indices ended in the red. The BSE Power index shed nearly nine per cent, the BSE Realty index fell over seven per cent, the BSE PSU index declined by seven per cent, and both the BSE Capital Goods and Metal indices lost five per cent each.

FIIs offloaded equities worth Rs16,854.25 crore during the week, while DIIs bought equities worth Rs21,682.76 crore. FII selling picked up pace last week with most global investors returning to work following year-end holidays. With the dollar index above the 109 level, close to a two-year peak, the Indian rupee slipped to its all-time low closing at 85.9650, down 0.2 per cent on the week and logged its tenth consecutive weekly loss. Uncertainty around President-elect Trump’s trade policies and the Fed’s interest rate decisions further dampened investor sentiment. India’s GDP growth for the financial year 2024–25 is projected at 6.4 per cent, marking a four-year low compared to the 8.2 per cent growth recorded in FY2023–24. This slowdown has raised concerns of potential credit rating downgrades, exacerbating the rupee’s decline and triggering foreign capital outflows.

Compounding the worries, crude oil price continued its uptrend during the week and any significant further increase can pose some challenge to the economy. Oil prices rallied nearly three per cent to their highest in three months. In the near term, macroeconomic data, such as India’s inflation rate and industrial production figures, will also play a crucial role in shaping market direction. On the global front, updates on the US economy, particularly labour market data and inflation trends, may impact FII flows. The Q3 earnings season will pick up pace in the week with Reliance Industries, Infosys, HCL Tech, Axis Bank, Tech Mahindra, LTIMindtree, Jio Financial among a host of companies due to report their quarterly results.

Market Musings: Analysts and market strategists love to predict what markets will do in the year ahead. Don’t let this misguided ritual blind you to what assets are really worth. Every December, market pundits predict what various assets will return over the coming year. Every January, the predictions begin to be proven wrong. You probably already know that this annual forecasting ritual is absurd. What you might not realize is that it’s also toxic. Even so, you can use it as inspiration to clarify how you think about your investments. How inaccurate are one-year market forecasts? They’re like a person looking in an unlit cavern at midnight for a black cat that isn’t there.

As 2024 began, the average return forecast for the Nifty was 14 per cent to 18 per cent by stock analysts and three per cent by market strategists. The actual return: 8.8 per cent. Over the past 20 years, according to an investment statistic, the correlation between the forecasts and the market’s actual returns was minimal for the analysts and zero for the strategists. Naturally, after two years of 19.5 per cen and 8.8per cent plus returns, and recent correction, the analysts and strategists have cranked their 2025 forecasts up to 20-25 per cent.

Banks, brokerages and big financial-advisory firms also commonly forecast the one-year returns of other assets, like bonds, gold, commodities, real estate and, more recently, bitcoin. There’s no reason to assume their Ouija boards work any more accurately there than they do for stocks. However, the purpose of all these predictions isn’t to be accurate. It’s to start conversations with clients and generate trades. These predictions are powerful sales tools. Brokerage’s forecasts, no matter how wrong they turn out to be, exert a magnetic force on your mind. An automatic property of the human mind is when we think about anything we don’t know much about—like the future performance of financial markets—we are highly suggestible. Even a random number can form the basis for our expectations. That’s why these perennial market forecasts aren’t merely fruitless. They are toxic.

Once a brokerage firm, bank, financial adviser or ‘finfluencer’ predicts that in 2025, stocks will go up 20 per cent or gold will gain 15 per cent or bitcoin will rise a gazillion per cent, those numbers lodge unconsciously in your mind. Your own estimates will gravitate toward them, whether you realize it or not. An antidote to the toxic effect of anchoring is to separate the expected one-year return of major assets into two buckets: forecastable and unforecastable.

Cash and short-term bonds? Forecastable, often within a very narrow range. Long-term bonds? Unforecastable: Maybe they will earn about eight per cent. Or maybe they will lose something like 10 per cent that happened in 2022. Stocks? Unforecastable: Maybe they will earn roughly their long-term average of 14 per cent. Or maybe they will drop 24.6 per cent, as they did in 2011, or gain 28.65 per cent, as they did in 2017. Or anything in between—or beyond. Real estate, gold, bitcoin? Also unforecastable.

It doesn’t mean the long-term future returns for many assets can’t be estimated. It is vital for anyone building a financial plan to make plausible forecasts of the rates at which investments will grow over the long run. But it is Important to realize that it’s “goofy as hell” to think anyone can predict the short-term returns for most assets. Notice, though, what happens once you kick a price expectation out from under an asset. Anchoring effect starts to play.

However, if you imagine and honestly admit that future value is unforecastable, you have no price anchor. Instead of what it will be worth, you must focus on whether and why it will be worth something.

That doesn’t mean you can’t buy different classes of assets. It means that, if you do buy, you need better reasons than their recent price action or the short-term predictions of a bunch of promoters. You should be able to answer questions like: Can stocks be immune to geo-political development? Can bitcoin remain resistant to hacking? Is it an effective hedge against inflation? Forgetting about current price predictions will help you come to your own conclusions about the rationale for owning, or not owning different classes of assets. Better yet, when you meet with your financial advisers, the above model will shift the discussion away from what they expect the market to do and toward what you want to do. The beginning of the year is the best time to think not about the next 12 months, but all the years to come.

Be prepared to invest in a down market and to get out in a soaring market, as per the philosophy of Warren Buffett.

F&O/ SECTOR WATCH

Mirroring the broad-based weakness in the cash market, the derivatives segment witnessed aggressive shorting by ‘bears’. The continuous selling by FIIs in the cash segment, along with earnings worries the Indian market were enough ‘fuel’ for bears to initiate fresh shorts. Nifty shed almost two per cent on the weekly chart, whereas Bank Nifty lost around three per cent. In the options segment, highest Call Open Interest for Nifty was seen at the 24,000 and 23,800 strikes, while the highest Put Open Interest was at the 23,000 strikes. For Bank Nifty, the highest Call Open Interest was seen at the 50,000 and 49,000 strikes, whereas highest Put Open Interest was at the 48,000 strike. Implied Volatility (IV) for Nifty’s Call options settled at 14.10 per cent, while Put options conclude at 15.23 per cent. The India VIX, a key market volatility indicator, closed the week at 14.66 per cent.

The Put-Call Ratio of Open Interest (PCR OI) for the week was 1.05. From a technical perspective, the Nifty continues to trade below its 200EMA (Exponential Moving Average) and similarly, the Bank Nifty also trades below its 200EMA. Immediate support for the Nifty is seen at 23,263 level, which happens to be previous swing low made in November 2024. Below 23,263 points, Nifty could slide down to the support zone of 22,670-22,800. On the higher side, the 23,800 is an immediate resistance, while positional resistance is seen at 24,226 points. All major sectorial indices closed in the red, with FMCG and IT being the outliers, though both also closed in the red on the weekly chart. The major losers were PSU banks, Realty and the Consumer Durables sector. Markets have turned bearish on the short to medium-term charts. Expect more downside in the benchmarks as well as in broader markets. Pullbacks should be utilized to lighten trading long commitments.

Stocks looking good are Biocon, GMR Airports, Infosys, Muthoot Finance, Marico, NHPC, UPL and Zydus Life.Stocks looking weak CAMS,Indus Towers, JSW Energy,Tata Elexi, TVS Motors and Voltas.

(The author is a senior maket analyst and former vice- chairman, Andhra Pradesh State Planning Board)

STOCK PICKS

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