Markets likely to get cautious start on Tuesday

Indian markets ended lower on Monday amid selling seen in the IT, metal, oil & gas and FMCG names, while buying in realty, PSU bank, media restricted further fall. Today, markets are likely to get cautious start as investors await crucial policy rate decision by the US Federal Reserve, along with any commentary on timeline about how the central bank plans to proceed towards a more neutral policy rate in the next year. Traders will be concerned as data released by the commerce department showed that India’s trade deficit reached a record high of $37.8 billion in November, amid a surge in merchandise imports, mainly driven by a 4.3-time jump in inbound shipments of gold. Imports increased by 27 per cent to a record of almost $70 billion during the month. On the other hand, exports contracted 4.8 per cent to a 25-month low of $32.1 billion in November. The contraction came in a month after witnessing robust 17 per cent year-on-year (Y-o-Y) growth in October, which was due to inventory-building by the West ahead of the Christmas season. There will be some cautiousness as CRISIL in its insight report said that high interest rates and fiscal consolidation have contributed to slower economic growth for India in the current financial year (FY25) so far. India’s real gross domestic product (GDP) is likely to move closer to trend growth of 6.5-7 per cent this year. It added some technical factors such as net product taxes and the GDP deflator have also disrupted the GDP’s trajectory. However, some support may come as Minister of State for Finance, Pankaj Chaudhary, has highlighted India’s remarkable achievements in attracting Foreign Direct Investment (FDI), with inflows reaching USD 709.8 billion between April 2014 and September 2024. Traders may take note of a report by CareEdge Ratings stating that the fiscal deficit of the central government is projected to be 4.8 per cent of GDP for FY25, slightly below the budgeted estimate of 4.9 per cent. The marginal improvement is attributed to healthy tax collections, despite certain shortfalls. There will be some buzz in stocks of e-commerce players such as Zomato and Swiggy with a private report that the GST Council may lower tax on food delivery charges by e-commerce players to 5% from 18%. IT stocks will be in focus as a report by Icra stated that the Indian IT services industry is expected to clock revenue growth in the mid-single digit for the financial year 2024-2025 (FY25). It added the Indian IT service sector will log growth in the range of 4-6 per cent, slightly better than the low-single digit growth of 3.8 per cent for FY24. There will be some reaction in gold related stocks as commerce ministry data showed that the country's gold imports in November reached a record high of $ 14.86 billion, registering a four-fold increase, mainly on account of festival and wedding demands. Gold imports stood at $ 3.44 billion in November 2023.

The US markets ended mostly in green on Monday as investors gauged the latest economic data while looking toward the Federal Reserve's final policy announcement of the year later in the week to gauge the path of interest rates. Asian markets are trading mixed on Tuesday as traders assess China consumer spending data.

Back home, Indian equity benchmarks ended lower on Monday, dragged by a decline in Metal, TECK and Oil & Gas stocks. After an initial decline, the markets gradually drifted lower in the first half and then traded within a range for the rest of the session, due to weak global cues amid caution ahead of the US Fed interest rate decision later this week. Traders were anxious as the Reserve Bank of India (RBI) data revealed that India’s foreign exchange reserves dropped by $3.235 billion to $654.857 billion, a five-month low, for the week ended December 6. Traders overlooked the preliminary readings from a survey showing that India's private sector output grew at the fastest pace in four months, helping the economy end 2024 on a positive note underpinned by sturdier demand in services and manufacturing and record jobs growth. Asia's third-largest economy grew a softer 5.4% last quarter, but easing inflation is expected to spur demand among private sector firms, improving the outlook for next year. HSBC's December flash India Composite Purchasing Managers' Index (PMI), compiled by S&P Global, rose to 60.7 this month - matching August's reading - after dropping to 58.6 in November.  Traders paid no heed towards the data showing that inflation based on wholesale price index (WPI) in India eased in the month of November 2024 to 1.89% as compared to 2.36% in October 2024, due to fall in prices of food articles, crude petroleum & natural gas and electricity. Traders also ignored a report stating that foreign investors have made a strong comeback to Indian equities with a net investment of Rs 22,766 crore in the first two weeks of December driven by expectations of rate cut by the US Federal Reserve. This revival follows significant outflows in the preceding months, with Foreign Portfolio Investors (FPIs) pulling out a net Rs 21,612 crore in November and a massive Rs 94,017 crore in October -- the worst monthly outflow on record. Finally, the BSE Sensex fell 384.55 points or 0.47% to 81,748.57, and the CNX Nifty was down by 100.05 points or 0.40% to 24,668.25.