New Year Street race sparks investor hope | Stock Market News

Stocks lit a spark of optimism for investors in the New Year as the benchmark indices roared back, even as experts keep their fingers crossed on whether the rally has legs.

The Nifty and Sensex closed 1.9% and 1.8% higher at 24,188.65 and 79,943.71 respectively, on a day that saw relatively lower volumes and the debut of new rules on options contracts. The Nifty broke through the 200-day moving average after several failed attempts in recent sessions, signalling a possible bounce-back. Investor wealth rose by ₹6 trillion.

Despite election-related uncertainties in India and the US, plus a selling spree by foreign investors, the Nifty and Sensex managed to close 2024 with gains of 8.8% and 8.1%; however, the much-awaited Santa Claus rally did not materialize in December, leaving investors waiting for a New Year surprise.

The market had been somewhat oversold, making a bout of buying almost inevitable, said Andrew Holland, CEO of Avendus Capital Alternate Strategies. “Right now, the focus is firmly on the positives,” he said. However, he expects the Nifty to trade within a tight range of 23,000-25,000 in the short term.

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Infosys Ltd gained as much as 4.3%, contributing the most to Nifty’s Thursday advance, while HCL Technologies Ltd hit a fresh record high. Automakers Maruti Suzuki India Ltd and Mahindra & Mahindra Ltd rallied after strong December sales helped ease concerns over the huge backlog of unsold stock.

Thursday’s rally coincided with the first weekly index options expiry with an increased lot size of 75 shares against 25 shares the preceding week. According to market participants, the larger lot size of weekly contracts seemed to influence options trading, with the number of index options contracts traded dropping to 23.53 crore, compared to 54 crore contracts traded last Thursday.

“This is purely a short-covering move on Nifty’s weekly expiry,” Manish Chowdhury, head of research at brokerage StoxBox told Bloomberg, adding foreign investors were heavily short. “I’ll wait two or three more days for a clear trend,” he said. Overseas investors’ bearish bets on Nifty futures Wednesday were the highest since June last year, according to data compiled by Bloomberg.

According to Holland of Avendus, the current phase is marked by an earnings slowdown, muted government spending, and the looming Trump presidency. If corporate earnings grow 10% in 2025, benchmark indices could rally at a similar pace, he said.

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However, growth is not a given: On Thursday, IIFL Capital Services said it expects GDP growth slowing to 6.3% in FY26, Nifty earnings growth at 10-12%, rupee weakening to 88-89 per dollar, and a tight monetary policy. “Combined with rising hopes in the US of growth acceleration (tax cuts and deregulation on the back of already strong growth), this implies continued capital flight, and some more correction (5-7%),” IIFL said in a report.

On Thursday, the traded value on NSE stood at ₹99,416 crore, below the December average of ₹1.05 trillion. Volume stood at 315 crore, against the daily average of 339 crore last month.

According to Aashish Somaiyaa, chief executive officer of WhiteOak Capital AMC, a wide array of stocks and sectors delivered returns multiple times over frontline indices in the last year, even as the Sensex and Nifty returns over the last two, three and five years remained in line with long-term average and respective earnings growth. “Ultimately, one expects mean reversion to play out and large-cap, quality, secular earnings, and quality/good governance to outperform for some period of time,” he said. Holland of Avendus too prefers large-cap stocks to midcaps and small-caps.

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For the coming year, a report by Nuvama Institutional Equities cautioned, “In all, brace for volatility. Swing variables: Trade wars, Fed, China and macro policy”.

However, Radhika Gupta, managing director and chief executive officer of Edelweiss AMC, is optimistic about Indian equities in 2025. She expects the spotlight to shift from political developments to corporate earnings. “In India, many stocks have surged on the back of earnings expectations, and 2025 will be the year to see if those expectations translate into results, as markets ultimately align with earnings growth,” she said.

According to Kotak Institutional Equities, the early part of 2025 may be similar to the second half of calendar year 2024, with the Indian market staying directionless for a while. That is because the market faces headwinds from high valuations, overly optimistic earnings estimates in consumption sectors, and structural weaknesses in domestic demand, it said. Meanwhile, “the behaviour of domestic non-institutional investors in a lacklustre market will be fascinating to see,” the brokerage said in a report dated 31 December, 2024.

FIIs turned net buyers in December, while DIIs have shown consistent resilience throughout 2024.

And read | Heavy FII selling, derivatives expiry torpedo relief rally

For this year, Sunil Jain, vice-president of derivatives and alternatives at Elara Capital, said the Union budget, ongoing government capex, efforts to boost consumption, and the direction of Trump’s policies will be crucial factors influencing both domestic and foreign inflows. He is optimistic about domestic liquidity staying strong in 2025, unless changes to debt taxation shift the focus toward debt investments.

“We’ll have a clearer picture of this after the Union budget,” he noted.

Meanwhile, Jain foresees a substantial rise in passive flows in 2025, outpacing active flows. Although he expects foreign investments to trickle into India, he believes the inflows are unlikely to be on a large scale. He also noted that sustained economic stimulus in China could attract global capital, creating the potential for funds to shift away from India.