NIFTY OUTLOOK FOR 23 DEC 2024

 Indian Equity Market Report: December 20

Key Highlights:

1. Market Performance:

   • The Nifty 50 closed at 23,587.50, down 364.2 points (1.52%).

   • The Sensex ended at 78,041.59, losing 1,176.46 points (1.49%).

   • Broader indices experienced sharper declines, with losses ranging from 2.2% to 3%.

2. Global and Domestic Factors:

   • US Federal Reserve's Rate Cut:

     • A 25 basis points rate cut was announced, aligning with expectations. However, the signal of only two rate cuts in 2025 disappointed global markets.

     • Fed Chair Jerome Powell revised the 2025 inflation forecast upward, emphasizing persistent inflation risks.

   • Foreign Institutional Investors (FII) Activity:

     • FIIs net sold Rs 12,230 crore worth of Indian equities over the past four sessions, reversing their earlier buying spree.

     • A strong US dollar and higher US Treasury yields (10-year at ~4.52%) have reduced the appeal of emerging markets like India.

   • Valuation Concerns:

     • The Nifty’s one-year forward P/E stands at nearly 20x, exceeding its 10-year historical average of 18.97x, leaving little margin of safety.

3. Sectoral Analysis:

   • Realty, IT, and Auto Sectors:

     • These sectors faced the steepest declines due to selling pressure.

     • IT stocks, which previously outperformed on anticipation of rate cuts, were notably impacted by the Fed’s hawkish stance.

   • Mid- and Small-Cap Stocks:

     • Valuations at historical peaks led to significant underperformance, with these indices falling sharply.

4. Technical Analysis:

   • The Nifty breached its 200-day exponential moving average (200 DEMA) at 23,870 on Thursday, intensifying selling pressure.

   • Friday’s session saw the index dip below critical support levels at 23,850, exposing further downside toward the 23,700–23,500 range.

   • Resistance for recovery lies between 23,850 and 24,000.

5. Key Challenges Ahead:

   • Persistent Selling Pressure:

     • Concerns over high valuations and sluggish earnings growth continue to weigh heavily on investor sentiment.

   • Global Uncertainty:

     • Apprehensions about upcoming trade policies under the incoming US administration and their potential global market impact.

   • Dollar Strength:

     • The rupee’s weakness against the dollar is prompting FIIs to shift investments to safer dollar assets.

6. Outlook:

   • The November low of 23,250 emerges as a crucial support level.

   • Traders are advised to maintain a cautious stance and prioritize risk management.

   • Upcoming Q3 FY25 corporate earnings may provide some clarity but are unlikely to spur immediate recovery given broader market conditions.

Conclusion: The Indian equity markets remain under pressure due to a confluence of global and domestic factors, including hawkish signals from the US Fed, FII outflows, high valuations, and sluggish earnings growth. Breaching key technical levels has intensified bearish sentiment, and the market’s ability to sustain critical support levels will determine its near-term trajectory.