Dalal Street Action Next Week: From US Fed Outcome To FII Activity & Global Cues; Key Market Triggers?

The Indian stock market closed on a positive note for the fourth consecutive week, marking its longest winning streak since the end of July. This rebound, despite intermittent volatility, reflects improving global and domestic sentiments. Investors are optimistic as the benchmark indices Sensex and Nifty 50 have regained strength, with several factors contributing to this bullish momentum.

Weekly Gains Amid Volatility

Domestic benchmark indices, the BSE Sensex and NSE Nifty 50 displayed a turnaround in the previous trading sessions, thanks to bargain hunting in sectors like telecommunications, technology, and consumer durables. The revival in investor sentiment was further boosted by favourable domestic retail inflation data. As a result, the Nifty 50 climbed 0.89% to 24,768.3, while the Sensex gained 1.04% to close at 82,133.12. On a weekly basis, the Sensex jumped 623.07 points (0.76%), and the Nifty added 90.5 points (0.36%).

While the indices remained range-bound for much of the week, late buying in blue-chip stocks on the final trading day helped erase earlier losses. Both indices are now approximately 5.5% below their all-time highs achieved on September 27, recovering steadily after slipping into correction territory in early November.

The week's rally saw broad-based buying, lifting over 40 Nifty stocks. The Nifty IT index, buoyed by expectations of a US Federal Reserve rate cut, rallied nearly 3% in the last five sessions. ICICI Direct's brokerage note highlighted the potential for a Santa Rally, with Nifty IT and Bank Nifty expected to drive the next leg of the market's uptrend, given their significant weightage in the index. Broader markets showed mixed trends. While the midcap index closed in the green, the smallcap index experienced a minor dip after exiting correction territory earlier.

Key Triggers for the Upcoming Week

US Federal Reserve Policy

The upcoming US Federal Reserve policy decision on December 19 is one of the most anticipated events for global and domestic markets. The consensus expectation is a quarter-point rate cut, which would bring the target range from 4.25% to 4.50%. This anticipated move aligns with declining inflation and a robust labour market in the US. The Fed's dovish stance, if confirmed, could further boost global equity markets, including India's.

IPO Frenzy & Listings

The primary market is set for intense action this week, with multiple initial public offerings (IPOs) and listings across both mainboard and SME segments. Transrail Lighting and Mamata Machinery will open for subscription on December 19, while Inventurus Knowledge Solutions and International Gemmological Institute IPOs will close bidding on December 16 and 17, respectively.

Vishal Mega Mart, Sai Life Sciences, and MobiKwik will debut on December 18, followed by Inventurus Knowledge Solutions on December 19 and International Gemmological Institute on December 20. Seven SME listings will also hit the markets this week.

Foreign & Domestic Institutional Investments

Foreign institutional investors (FIIs) net sold Rs 226 crore in the cash market last week, while domestic institutional investors (DIIs) provided strong support with a net investment of Rs 2,880 crore. However, foreign portfolio investors (FPIs) have turned net buyers in December, snapping a two-month selling streak. NSDL data shows FPIs invested Rs 22,766 crore in equities this month, with total net inflows at Rs 34,318 crore across all segments.

The flow of institutional investments will be a critical driver of market momentum. Continued FII inflows could propel the indices higher, while outflows might cap gains.

Global Cues & Geopolitical Factors

The performance of US markets, crude oil prices, and geopolitical tensions such as the Russia-Ukraine conflict will continue to influence investor sentiment. The dollar index and US bond yields remain key concerns for emerging markets like India.

Additionally, monetary policy decisions from the Bank of England (BoE) and the Bank of Japan (BoJ) and US GDP data will provide further direction.

Crude Oil Prices

Global crude oil prices surged approximately 2% in the previous session, reaching a three-week high. Brent crude closed at $74.49 per barrel, while WTI crude settled at $71.29 per barrel. Back home, crude oil futures on the Multi Commodity Exchange (MCX) ended 1.1% higher at Rs 6,044 per barrel. Lower interest rates in Europe and potential sanctions on Russia and Iran are expected to tighten supplies, pushing prices higher.

Corporate Actions

The upcoming week will see several companies trading ex-dividend, ex-split, or ex-bonus, adding another layer of activity to the markets. Investors will keep an eye on these developments to gauge stock-specific movements.

Outlook: A Santa Rally in the Making?

The combination of improving macroeconomic data, expectations of a US Fed rate cut, and positive domestic developments suggests that a Santa Rally could be on the horizon. ICICI Direct's note predicts a broader outperformance, driven by the Nifty IT and Bank Nifty indices. Investors are advised to focus on quality stocks during dips to capitalize on the ongoing market momentum.

As the market enters the third week of December, all eyes will be on key triggers, including the Fed's policy decision, institutional flows, crude oil prices, and IPO activity. With the benchmark indices recovering from recent lows and broader markets showing resilience, the stage is set for a potentially bullish close to 2024.