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The Indian stock market experienced a positive week, driven primarily by the Reserve Bank of India's (RBI) unexpected decision to cut the repo rate by 50 basis points. This aggressive monetary policy move, exceeding market expectations of a 25 basis point reduction, aims to stimulate economic growth amidst concerns about a potential slowdown. The RBI's action, coupled with a reduction in the cash reserve ratio to enhance liquidity, signaled a shift to a neutral policy stance, departing from the previous accommodative approach. This supportive policy backdrop provided a significant boost to investor sentiment, overshadowing concerns related to escalating geopolitical tensions and potential shifts in US tariff policies. The Nifty 50 index closed above the 25,000 mark, reflecting the overall positive momentum. Furthermore, the broader market outperformed the benchmark indices, indicating a widespread rally across different market capitalization segments. The Nifty Midcap 100 and Smallcap 100 indices registered substantial gains, highlighting increased investor confidence in the growth potential of smaller companies. Among the various sectors, rate-sensitive sectors, particularly the Nifty Realty index, witnessed remarkable growth, fueled by expectations of lower borrowing costs and increased demand for real estate. Banking and financial services, along with the auto sector, also experienced positive performance, contributing to the overall market uptrend. The upcoming week is expected to maintain a positive bias, buoyed by the RBI's accommodative monetary policy and optimism surrounding ongoing trade negotiations between India and the United States. However, market participants remain cautious about potential headwinds, including unexpected changes in US tariffs and persistent geopolitical uncertainties. The release of monthly inflation data from both the US and India will be closely monitored, as these figures provide crucial insights into the economic outlook and potential policy responses. Moreover, the investment behavior of foreign institutional investors (FIIs) will be a key factor influencing market direction, as their participation plays a significant role in shaping market sentiment and liquidity.
According to Siddhartha Khemka, Head of Research at Motilal Oswal Financial Services, the Indian markets are poised for a gradual upward movement, supported by the positive sentiment generated by the RBI's rate cut and the anticipation of a favorable US-India trade agreement. The meeting between officials from both countries in New Delhi to finalize the initial phase of the proposed trade deal has raised hopes of reduced trade barriers and increased economic cooperation. However, Khemka also acknowledges the potential for global headwinds, such as unexpected shifts in US tariffs and ongoing geopolitical tensions, to introduce volatility into the market. He suggests that, in addition to rate-sensitive sectors, monsoon-linked sectors like fertilizers, agro-chemicals, rural finance, and two-wheelers will likely attract attention, driven by forecasts of an above-average monsoon season in 2025. This expectation of a favorable monsoon has the potential to boost agricultural output, rural income, and overall economic growth, benefiting companies operating in these sectors. Vinod Nair, Head of Research at Geojit Investments, echoes the sentiment that the aggressive RBI rate cut, supported by cooling inflation and a stable GDP outlook, is likely to bolster investor confidence amidst global uncertainties. While acknowledging the long-term risks posed by China's rare earth restrictions and the importance of the upcoming US inflation data, Nair emphasizes the positive impact of the RBI's monetary policy on market sentiment and investor appetite. The article highlights ten key factors that market participants will be closely monitoring in the coming week, including CPI inflation data, balance of trade figures, and foreign exchange reserves. The release of CPI inflation numbers is particularly significant for the RBI, as it influences future interest rate decisions. Most economists anticipate inflation to remain below the RBI's target of 4 percent for the current year, providing further room for monetary easing if needed. The US inflation print is another crucial data point that will be scrutinized by global investors, as it provides insights into the health of the US economy and the potential trajectory of the Federal Reserve's monetary policy. Other key global economic data releases include China's inflation, PPI, and vehicle sales data, as well as Japan's January-March quarter GDP numbers and PPI.
The progress of US-India trade agreement negotiations will also be closely watched, as both countries aim to reduce tariff and non-tariff barriers and enhance supply chain resilience. Reports indicate that trade talks have been extended into the following week, with both sides seeking consensus on tariff reductions in the farming and auto sectors, aiming to finalize an interim deal by a July 9 deadline. The flow of funds from foreign institutional investors (FIIs) will be another crucial factor influencing market direction. FIIs have been net sellers in recent weeks, continuing a trend of outflows after strong buying activity in May. However, domestic institutional investors (DIIs) have compensated for the FII outflows to a significant extent, providing strong support to the equity market. The US dollar index has weakened, while the US 10-year Treasury yield has increased slightly. The primary market will witness several IPOs opening in the coming week, including one from the mainboard segment and several from the SME segment. Ganga Bath Fittings is scheduled to make its debut on the NSE Emerge platform. From a technical perspective, the market is exhibiting positive signs, particularly after the recent sell-off. The Nifty 50 index has traded above all key moving averages with strong volumes, and these moving averages are trending higher with positive crossovers in MACD and RSI. The Bollinger bands have expanded, suggesting a potential target of 25,300 for the Nifty 50 index. Overall, the 25,000 level is expected to be a crucial zone for the index, with potential for further upside if it can sustain above this level. However, support is placed at 24,800 levels, followed by 24,500. The weekly options data indicates that 25,000 is a key zone for further directional trade in the Nifty 50, with resistance at 25,500 and support at 24,800-24,700 levels. The maximum Call open interest is placed at the 26,000 strike, while the 25,000 strike holds the maximum Put open interest. The volatility index, India VIX, has declined, indicating increased comfort among market participants.
Source: Dalal Street Week Ahead: US, India inflation, US-India trade talks among 10 key factors to focus on