The government approved plans to set up the 8th pay commission, which will impact over 50 lakh central government employees, and 65 lakh pensioners, and will take effect from FY27.
Whilst this is, theoretically, expected to boost consumption, several questioned the affordability of this move from the government’s perspective.
Continued Consolidation
The markets continued their consolidation phase, shedding nearly 1%. Major factors dragging the markets down included persistent selling by FIIs, mixed corporate earnings, and a sharp rise in crude oil prices, which all dampened investor sentiment.
On the bright side, easing retail inflation and strength in select heavyweight stocks helped limit the pace of the decline.
Ultimately, the benchmark indices, Nifty and Sensex, closed at 23,203 and 76,619, respectively. The decline seen in the first trading session of the week was followed by a mild recovery during the middle of the week.
Interestingly, broader indices displayed resilience amidst the volatility, ending almost flat.
Index | January 10, 2025 | January 17, 2025 | % Change |
Nifty | 23,431.5 | 23,203.2 | -0.97 |
Bank Nifty | 48,734.2 | 48,540.6 | -0.40 |
Midcap Nifty | 54,585.8 | 54,607.7 | 0.04 |
Mixed Cues
There was a mixed trend seen amongst sectors, with Metals and Energy showing decent gains, while IT stocks plunged sharply due to weak earnings. Declines were also seen in the sectors of Realty and FMCG.
PSU Banks had witnessed significant declines in the past two weeks, and some marginal recovery was visible in this week. The same was the case with the Metals and Energy sectors.
Movement in the IT sector was determined by results, which were either in-line with street estimates, or even below. Tata Elxsi was one major underperformer and investors were quick to give a cold shoulder to the stock, on poor results.
Indices | Weekly Change (%) |
Nifty PSU Bank | 3.43 |
Nifty Metal | 3.13 |
Nifty Energy | 2.79 |
Nifty Select Midcap | -0.27 |
Nifty Bank | -0.40 |
Nifty Financial Services | -0.54 |
Nifty Auto | -0.98 |
Nifty Pharma | -1.43 |
Nifty FMCG | -2.31 |
Nifty Media | -2.36 |
Nifty Realty | -2.50 |
Nifty IT | -5.78 |
Amid the consolidation in the markets it was the midcap segment that witnessed a good recovery, while small caps remained under pressure.
With this, stocks like IDBI Bank, Idea and BSE featured in the list of top 5 gainers of the week. However, Kalyan Jewellers witnessed a significant decline this week as well.
Weekly Top Gainers and Losers (Nifty 500)
Company | Weekly Gain (%) |
IDBI Bank | 20.34 |
IDEA | 17.68 |
BSE | 17.27 |
Adani Green Energy | 14.31 |
IRCON International | 14.26 |
Company | Weekly Loss (%) |
Kalyan Jewellers | -19.87 |
ITI | -15.37 |
Amber Enterprises | -13.81 |
Vijaya Diagnostic Centre | -12.63 |
K Fintech | -12.54 |
More Selling by the FIIs
As stated earlier consistent selling by FIIs is one major reason for the decline in the benchmark indices declining. FIIs were net sellers to the tune of Rs. 25,218 crore.
Though the DIIs were buyers to the tune of almost equivalent amount, the indices could not sustain the important technical levels.
We opine that unless the Trump administration provides a clear action plan, the outflow is expected to continue.
India Equity - Institutional Funds Flow Rs. crore
Date | FII | FII (Futures) | DII |
January 13, 2025 | -4,893 | 828 | 8,066 |
January 14, 2025 | -8,132 | 3,500 | 7,901 |
January 15, 2025 | -4,533 | 1,851 | 3,683 |
January 16, 2025 | -4,342 | -5,513 | 2,929 |
January 17, 2025 | -3,318 | -3,252 | 2,573 |
Total | -25,218 | -2,586 | 25,152 |
Where’s the Money?
The Cabinet approved the 8th Pay commission. While this is positive in a general sense as it spurts consumer demand, its impact on government expenditure doesn’t look too encouraging. India’s fiscal deficit has already been leading to higher borrowings, which eventually also impact rates. While the scenario may or may not lead to higher consumer demand, it surely is expected to make a big impact on the government’s kitty.
Another negative on the markets was in the form of RBI’s review of existing forex regulations, in consultation with the centre, which aimed at promoting cross border transactions in the Rupee and other national currencies. In addition to this, RBI Governor Malhotra was reported in the media to indicate willingness to allow Indian Rupee to be more flexible. This could lead to further depreciation in the INR against USD, which is negative for the markets. But what could hurt more is the volatility.
Amid these downers was a positive in the form of CPI inflation data for December 2024, which was better than street expectations. Inflation came in at 5.2% YoY, which was 10 bps lower than the street expectations, driven down by a decline in food and vegetable prices, which have been a concern area.
What Next?
Looking ahead, we anticipate the market to maintain a cautious tone next week due to several domestic and global factors. Some major factors include:
Key corporate earnings from heavyweights such as Hindustan Unilever, HDFC Bank, ICICI Bank, BPCL, and Hindustan Petroleum are slated for release
The swearing-in of US President Donald Trump on January 20 is expected to draw significant attention, especially for any initial announcements on trade tariffs and their implications for global trade
Technical Perspective
From a technical perspective, the Nifty has breached its November 2024 low of 23,263, facing selling pressure on every recovery attempt. We now expect the index to test the 22,700 level, with minor support at 22,900.
On the upside, any rebound is likely to face strong resistance in the 23,500-23,700 zone. Traders are advised to maintain a bearish bias in the index, using recoveries to reduce existing long positions or initiate fresh shorts until clear signs of a reversal emerge.
Amid the prevailing negativity, select stocks in the sectors of Metals, Energy, and PSUs are showing buying interest, while others continue to drift lower.
It will also be crucial to monitor whether the broader indices, including midcaps and small caps, can sustain their ground.
Earnings-related movements are expected to keep traders vigilant. We thus reiterate the importance of prioritising risk management and maintaining a balanced approach with positions on both sides of the market.
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