Sensex & Nifty poised for a strong finish to 2024; Key factors to watch

As we approach the end of 2024, the Indian stock market is set to close on a high note despite facing numerous global and domestic challenges. Last week, the market saw some consolidation with intraday volatility, mainly due to foreign fund outflows and weak global cues during the festive season. Although this subdued trading environment slowed the recovery, investor optimism for 2025 remains robust.

Market Recap for the Week ahead: The Nifty 50 and BSE Sensex brought some relief to investors with modest gains last week. The Nifty 50 rose nearly 1%, closing at 23,813, while the Sensex climbed 0.84%, ending at 78,699. These gains followed a significant 5% drop the previous week, the steepest in 30 months, triggered by the US Federal Reserve's projection of fewer rate cuts in 2025.

The recovery was led by the auto sector, where attractive valuations after prior declines spurred buying interest. Other resilient sectors included pharma, auto, and FMCG, while metals lagged behind. The midcap and smallcap indices remained flat, reflecting cautious investor sentiment.

A positive development was the 12% drop in the India VIX (Volatility Index), indicating reduced market fear and potentially boosting investor confidence. However, trading volumes were lower than usual, averaging 180 million shares on the Nifty 50 compared to the yearly average of 300 million.

Key Market Triggers:

Corporate Earnings & Q3FY25 Updates: Investors will be closely watching corporate earnings for the third quarter of FY25. These updates will provide insights into how companies have performed during the festive season and amidst global economic challenges. Strong earnings reports could boost investor confidence as we enter 2025.

Auto Sales Data: Auto sales data for December will be another key market trigger. After strong performances in recent weeks, any positive surprises in sales numbers could further enhance investor sentiment, particularly towards auto stocks.

IPO Activity: The primary market will be busy, with four new IPOs and six listings scheduled for the upcoming week. Notably, Indo Farm Equipment’s IPO opens for subscription on December 31, and three SME IPOs will open for bidding between December 30 and January 3. Stocks of Ventive Hospitality, Senores Pharmaceuticals, and Carraro India will debut on December 30, with Unimech Aerospace and Manufacturing following on December 31. These events could inject fresh momentum into the market.

Foreign & Domestic Institutional Activity: Foreign Institutional Investors (FIIs) were net sellers last week, offloading Rs 6,322 crore in the cash market. However, Domestic Institutional Investors (DIIs) provided support, injecting Rs 10,927 crore into equities. As of December 27, FIIs had invested Rs 16,675 crore in Indian stocks for the month. The continuation of FII and DII activity will be crucial in shaping the market's direction.

Global Economic Cues: Global cues, especially from the US and China, will continue to influence market sentiment. Key data points such as the US Manufacturing PMI, jobless claims, the US dollar index, and 10-year bond yields will be closely monitored. Any increase in US bond yields or the dollar index could pressure emerging markets like India.

Crude Oil Prices: Oil prices showed modest gains last week, with Brent crude rising 1.2% to $74.17 per barrel and US West Texas Intermediate crude increasing 1.4% to $70.60 per barrel. Domestically, crude oil futures on the Multi Commodity Exchange (MCX) edged up slightly to Rs 6,045 per barrel. Movements in crude oil prices will be important, as they can affect inflationary pressures and market sentiment.

Corporate Actions: Several companies will announce corporate actions such as ex-dividend, ex-bonus, or ex-split this week. For example, Redtape shares will trade ex-dividend, while KPI Energy will go ex-bonus. These actions could influence stock-specific movements.

Broader Market Outlook: Despite the challenges of 2024, the Indian stock market has shown resilience, supported by a strong domestic economy and steady inflows from domestic institutional investors. The low trading volumes in recent sessions are expected to be a temporary effect due to the holiday season, with activity likely to pick up in January as the corporate earnings season begins.

Analysts expect the market to remain range-bound in the short term, with a cautious tone until more clarity emerges from global economic data and corporate earnings. However, the significant drop in the India VIX suggests that volatility may remain subdued, providing a more stable environment for investors in the near future.

Risks to Watch: While the outlook is positive, several risks could impact sentiment. On the global front, any rise in US bond yields or the dollar index could negatively affect emerging markets, including India. Domestically, persistent foreign fund outflows or weak macroeconomic data could dampen investor sentiment, especially if global risks intensify.

As 2024 draws to a close, all eyes will be on the upcoming triggers, which could set the tone for the early part of 2025. Stay tuned for updates and analysis as the market navigates these developments.