Markets turn cautious amid US policy tantrum

Buoyed by renewed optimism over the revival of India–US trade talks, the US Federal Reserve’s first rate cut of 2025, mixed FII flows, positive spillover from recently announced GST reforms, supportive domestic and global cues; markets extended their winning streak for a third straight week.

For the week, Nifty rose 213.05 points or 0.83 per cent to close at 25,327.05, while the Sensex gained 721.53 points or 0.88 per cent to close at 82,626.23.

The outperformance from broader indices continued in third consecutive week, adding 1-2 per cent amid buying across the sectors with DII support and favourable global markets. FIIs outflow extended for the 12th straight week, with equity sales worth Rs1,327.38 crore, while DIIs continued their buying in 23rd week with purchases worth Rs11,177.37 crore.

So far in 2025, FIIs have pulled out Rs1.4 lakh crore from Dalal Street, reallocating investments to other countries. With GST rationalisation set to take effect from coming week and festive demand expected to strengthen, investor attention turned toward consumption-driven sectors.

Autos and real estate attracted increased buying interest. Export-oriented segments such as IT and pharma gained from improved global liquidity and progress in US-India trade talks. Weekend “bomb” from US President Trump proposing changes to H 1B visa program threatens to reshape the IT services outsourcing sector.

According to observers, the policy could severely impact companies that rely heavily on skilled foreign talent — particularly tech firms, which made up a majority of H-1B approvals last year, with India accounting for 71 per cent of the total.

Expect knee jerk reaction on Indian IT biggies during the early part of next week. It is pertinent to observe that the benchmark indices Nifty and Sensex have effectively gone nowhere over the past 12 months, posting a -0.7 per cent return and falling behind most global peers, a sobering outcome despite a backdrop of policy tailwinds like GST and income-tax relief, interest rate cuts, and resilient domestic fund inflows.

Analysts attribute this to weak corporate earnings, persistent FII selling, and elevated valuations as the key reasons behind the muted performance. From being one of the strongest performers among global and emerging markets just a year ago, Indian equities have slipped to the bottom of the performance table in what many market participants are calling a “stunning reversal of fortune.”

FIIs are reallocating capital to their home markets and other developed economies where returns have been more attractive relative to emerging markets. The Indian rupee has weakened relative to major global currencies.

Market sentiment has also been hit by political and policy-related uncertainties. Populist measures adopted at the beginning of the 3rd term by the government and pursuant slowdown in government capex also deteriorated market sentiments.

After the recent GST rationalisation steps, there is a growing anticipation of additional policy actions that could support the market. CRR cut by the RBI, which would release liquidity into the system and potentially lower interest costs for businesses and interest rate cuts expected in the next 2 to 3 months.

While near-term performance has been disappointing, market experts remain confident that India’s long-term growth story remains intact and expect strong earnings growth revival from FY27 onwards.

Going forward, investors will closely track key India-US trade talks, cues on the Fed’s policy trajectory, geopolitical developments in Ukraine-Russia conflict & developments in Middle East, macro indicators—including GDP and core inflation.

Watch the upcoming manufacturing PMI which will serve as a timely barometer of industrial sentiments, offering early signs of a much-awaited demand revival. With resilient domestic fundamentals and a weakening US dollar, conditions appear favourable for renewed FII inflows, which could further boost Indian equities in the coming weeks.

Monetary easing, fiscal stimulus, and liquidity support are converging at a time when markets have turned cautious. This alignment could drive earnings upgrades in H2 FY26, credit growth acceleration and an improved investor sentiment after a year of underperformance.

The pieces are falling into place for a second-half equity market revival. With expectations running low, any positive surprise on earnings or policy could set off a rally, making H2 FY26 a period to watch closely for investors seeking early opportunities.

IPO Corner: After the successful listing of couple of mainboard issues like Urban Company in the last week; the primary market is gearing up for one of its busiest weeks of the year with as many as 25 Mainboard and SME IPOs in the coming week. Issue sizes range from Rs18 crore to over Rs1,200 crore.

The action will be led by big-ticket mainboard issues such as Anand Rathi Share, Ganesh Consumer, Jain Resource Recycling, Seshaasai Technologies, and Atlanta Electricals. All these companies plan to raise cumulatively nearly Rs6,300 crore.

The rush of IPOs comes against the backdrop of volatile secondary markets but robust demand for new listings. GMPs suggest mixed sentiment, with some mainboard names like Jain Resource Recycling showing strong buzz, while several SME issues are trading at flat levels.

Be prepared to invest in a down market and to “get out” in a soaring market, as per the philosophy of Warren Buffett.

FUTURES & OPTIONS / SECTOR WATCH

Riding on the resilience in the cash market, derivative segment witnessed spurt in volumes. Digesting the announcement of a Federal Reserve rate cut, mild short covering was seen from FIIs.

The Nifty recorded a gain of 0.85 per cent, while the Bank Nifty outperformed with a weekly increase of over 1 per cent. Sectorally, barring Nifty FMCG (down 0.5 per cent), all other indices ended higher with Nifty PSU Bank index added nearly 5 per cent, Nifty Realty index rose over 4 per cent, Nifty Defence index added 3.4 per cent, Nifty Energy, Oil & Gas rose 2 per cent each. In the options segment, prominent Call open interest for Nifty was seen at the 25,400 and 25,500 strike, while the notable Put open interest was at the 25,300 and 25,000 strike.

For Bank Nifty, the prominent Call open interest was seen at the 56,000 strike, whereas notable Put open interest was at the 55,000 strike. Implied volatility (IV) for Nifty’s Call options settled at 9.04 per cent, while Put options concluded at 10.23 per cent.

The India VIX, a key indicator of market volatility, concluded the week at 9.89 per cent. The Put-Call Ratio Open Interest (PCR OI) stood at 1.15 for the week. Both major indices, Nifty and Bank Nifty, are trading above their long-term exponential moving averages, indicating a sustained bullish trend. Technically, this market action indicates a formation of short-term top reversal pattern.

The market now awaits a fresh trigger for the next leg of upside momentum. Further consolidation or minor dip could be a buying opportunity by next week. Immediate support is placed at 25150 and a sustainable move above 25500 could pull Nifty towards the next hurdle of 25700 levels. Valuation discipline remained evident, with profit booking in overvalued counters and renewed buying in attractively priced segments like PSU banks during the week ended.

Stocks looking good are Bharti Airtel, Blue Star, Federal Bank, HUDCO, IEX, Mankind, Maruti and PPL Pharma. Stocks looking weak are Asian Paints, Crompton, InduSind Bank, Jubilant Food, Marico and Tata Motors, Torrent Power.

STOCK PICKS

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