From RBI policy to pre-budget rally - experts highlight 3 near-term key triggers for Indian stock market

Indian stock markets have been trading slightly higher after opening flat on Monday. However, selling pressure is increasing following last week's release of lower-than-expected Gross Domestic Product (GDP) numbers. India's GDP growth has slowed to 5.4%, marking the lowest growth rate in two years.

ICICI Direct Research reported that the GDP for Q2 FY25 was lower than market expectations, recorded at 5.4% compared to the anticipated 6.5%. Additionally, Real Gross Value Added (GVA) grew by 5.6% in Q2 FY25, reflecting a slowdown from 7.7% in the same period last year.

The Nifty 50 index began the day with a modest gain of 9 points, reaching 24,140 points, indicating some positive momentum. Meanwhile, the Sensex index opened at 79,743.87, down by 58 points.

Looking ahead, market experts suggest that the Nifty 50 is likely to remain cautious due to several negative factors. These include threats of tariffs from Trump, persistent inflation pressures in the US, and the recent release of the US PCE index, which is the Federal Reserve's preferred inflation gauge. Additionally, the solid economic momentum in the US, and improving consumer prospects add complexity to the outlook for interest rate policy in the coming year.

Market experts suggest that the next three triggers to review immediately are the Reserve Bank of India's (RBI) stance on interest rate cuts, better-than-expected Q3 earnings, and the upcoming pre-budget rally.

Three triggers to review in the near-term

RBI stance on interest rate cut

All eyes are now on the upcoming Reserve Bank of India's Monetary Policy meeting scheduled for December 4 to 6, 2024. The decision will be announced on December 6 by RBI Governor Shaktikanta Das at 10 AM. Since February 2023, the Reserve Bank has maintained the repo rate, or short-term lending rate, at 6.5%.

There is considerable discussion on D-Street about whether there will be a rate cut or if it is likely to be postponed until the meeting in February 2025.

Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services stated that RBI is likely to cut Cash Reserve Ratio (CRR) on December 6. With Consumer Price Index (CPI) inflation at 6.2%, which is above RBI’s tolerance limit, the Monetary Policy Committee (MPC) cannot cut rates on December 6.

Prashanth Tapse, Research Analyst, Senior Vice President of Research at Mehta Equities, highlighted that globally interest rates have started coming down, but India is still holding its rates tight, with good room to cut rates. We can expect a 25 to 50 bps rate cut on it before budget 2025, which can support the economy and growth, which seems likely to be degrowing. I feel a rate cut is the need of the hour to stimulate markets and sentiments.

“The rate cut expectation in its upcoming December 6 MPC meeting is likely gain traction as RBI since last few meetings was highlighting that there is no urgency to support growth. Even if RBI postpone the rate cut to February 2025 meeting, it may indicate for a benign liquidity environment going forward and may provide some guidance for rate cut in subsequent meeting which itself will provide relief to both equity and debt markets,” added ICICI Direct Research.

Better than expected Q3 earnings

The earnings season for the quarter ending in December (Q3 FY25) will begin in the second or third week of January, starting mainly with major IT companies like TCS and Infosys. After a disappointing Q2 earnings season, the market is hoping for a modest recovery in Q3 earnings.

“Q1 and Q2 earnings have so far been disappointing adding fuel to the market sentiments and now investors will wait for Q3 earnings results which could start from January 10th 2025 onwards,” added Prashanth Tapse.

According to Dr. V K Vijayakumar, a mild recovery in Q3 earnings can be expected on the back of festival season sales. But we will have to wait till Q4 for some silver linings. Even in Q4 strong recovery appears difficult. The situation can change if inflation declines and the MPC cut rates in February.

Pre-budget rally

Prashanth Tapse highlighted that we would see full fledged budget 2025 after the new govt has formed which can give stimulus to market. Sectors to be focused Insurance, Defence.

“Given the elevated valuations and deceleration in growth and earnings a pre-budget rally is unlikely,” added Dr. V K Vijayakumar.

The budget for the financial year 2025-26 is scheduled to be presented on February 1, 2025.

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