The Indian equity markets witnessed a sharp downturn this week, with the Nifty plunging nearly 1,200 points, falling below its 200-day Exponential Moving Average (DEMA). This marked the largest weekly drop since March 2020, underscoring heightened volatility.

Weekly Recap:

Key Drivers Behind Market Decline

1. Global Market Sentiment:

• Global indices declined by approximately 2%, driven by hawkish commentary from the US Federal Reserve, which reaffirmed its focus on inflation control.

• The Dollar Index surged to 108, a two-year high, intensifying global risk aversion.

• Bond yields hit a 10-month high, signaling tighter monetary conditions.

2. Domestic Concerns:

• Persistent selling by Foreign Institutional Investors (FIIs) resulted in net outflows of ₹15,826 crore.

• Local trade deficit climbed to its highest level in two years, putting further pressure on the rupee, which weakened significantly.

• Domestic Institutional Investors (DIIs) provided some cushion with net inflows of ₹11,873 crore.

Sectoral Outlook: What to Watch Next Week

1. Real Estate: • Realty stocks are expected to continue their upward momentum, driven by strong demand trends and robust quarterly results.

2. Information Technology (IT): • IT stocks are likely to see positive sentiment after Accenture’s FY25 revenue guidance upgrade.

3. Pharma: • The pharmaceutical sector remains a bright spot, bolstered by strong quarterly earnings, a favorable USD-INR exchange rate, and recent approvals by the US FDA for domestic players.

4. Sugar: • The sugar sector is likely to witness positive movement amid favorable market dynamics.

Market Outlook for the Coming Week

• Range-Bound Activity: With many FIIs on holiday, trading is expected to remain sluggish and range-bound until January 2nd, 2025.

• Buying Opportunities: The current market levels provide attractive entry points, as the risk-reward ratio is favorable.

• Macro Tailwinds:

• Strong advance tax collections indicate robust corporate earnings.

• Hints of a potential RBI rate cut next year could provide medium-term support.

Global Economic Calendar Highlights

• United States: Durable Goods Orders, Consumer Sentiment Index, and Personal Income reports.

• Eurozone: Business Climate Surveys and Current Account Data.

• China: Industrial Profits Data.

• Japan: Bank of Japan’s latest Monetary Policy Meeting Minutes.

Closing Thoughts

While markets remain under pressure, underlying macro and sector-specific tailwinds suggest a cautiously optimistic outlook. Investors should focus on sectors with strong fundamentals and align strategies to capitalize on the favorable risk-reward ratio.

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