Weekly Market Wrap-Up

1. Market Moves?

Indian market Summary – Rupee at an all-time low

Market sentiment remained subdued as multiple headwinds converged to create a challenging environment for investors this week. Foreign Institutional Investor (FII) outflows continued to be a significant concern, exacerbated by the weakening Indian Rupee. Adding to these worries were looming uncertainties about potential adverse tariff policies and diminishing expectations for interest rate reductions in 2025, which collectively dampened market enthusiasm.

Trading activity was notably constrained during the abbreviated holiday week, characterized by reduced volumes across exchanges. A particularly troubling development was the Indian Rupee's descent to unprecedented lows against the US Dollar.? The US Dollar's broad-based strengthening against major global currencies has multiple negative implications: it threatens to inflate import costs across sectors, potentially widen the country's trade and current account deficits, put pressure on foreign exchange reserves, and diminish the attractiveness of Indian equities for international investors seeking returns in dollar terms.

Despite the cautious secondary market environment, primary markets demonstrated remarkable resilience and investor interest. The closing week of 2024 proved particularly active in the Initial Public Offering (IPO) space, with eight new listings - five in the mainline segment and three in the Small and Medium Enterprise (SME) category - receiving enthusiastic responses from investors.?

The uncertainty surrounding potential economic policies under a Trump administration and elevated market valuations pose particular challenges for emerging markets like India in 2025.?

Global market summary – US Treasuries surge despite Fed’s rate cuts.?

The final trading week of the year saw modest upward momentum in major U.S. equity markets. The week began on a strong note, carrying forward momentum from the previous Friday's session. Large-cap growth stocks, particularly in the technology sector, spearheaded the advance, allowing the tech-centric Nasdaq Composite to take the lead among major indices. However, the market's trajectory shifted noticeably following the Christmas holiday closure on Wednesday. The latter half of the week witnessed a broad pullback across most indexes, partially eroding their earlier gains.?

In the commodities market, crude oil demonstrated notable strength, with U.S. futures contracts gaining ground amid declining domestic inventory levels.? Economic indicators released during the week painted a mixed picture of the U.S. economy. The Conference Board's closely watched consumer confidence index registered a significant decline in December, dropping to 104.7 from November's reading of 112.8. This decrease suggests growing consumer uncertainty about economic conditions. In the fixed-income markets, yields continued their upward trajectory, with the benchmark 10-year U.S. Treasury yield pushing above 4.6% by Friday's close. This movement is particularly noteworthy given that the 10-year yield has surged by approximately 100 basis points since the Federal Reserve's decision to implement rate reductions.?

2. Economic Indicators?

India

• India's forex reserves fell by $8.4 billion to $644.39 billion during the week that ended on 20 December.

US

• The Conference Board's Consumer Confidence Index pulled back in December. The index decreased to 104.7 this month from November's upwardly revised 112.8.
• New orders for manufactured durable goods in the US decreased 1.1% month-over-month to $285.1 billion in November 2024, following an upwardly revised 0.8% rise in October.?
• Sales of new single-family homes in the United States rose by 5.9% from the previous month to a seasonally adjusted annualized rate of 664,000 in November of 2024.
• Building permits in the United States rose by 5.2% to a seasonally adjusted annualized rate of 1.493 million in November of 2024, revised lower from initial estimates of 1.505 million.

UK/Eurozone/Germany

• The British economy stalled in Q3 2024, revised down from the first estimate increase of 0.1% and below a downwardly revised 0.4% in Q2.

Japan/China

• Japan’s leading economic indicators index stood at 109.1 in October 2024, topping preliminary data of 108.6 and September's reading of 108.9.
• Japan's industrial production declined by 2.3% month-over-month in November 2024 preliminary data showed. Yearly, industrial production shrank by 2.8%, shifting from a 1.4% increase in October.
• Japan’s unemployment rate stood at 2.5% in November 2024, holding steady for the second consecutive month. The number of unemployed edged up 10 thousand to 1.72 million.
• Retail sales in Japan grew by 2.8% year-on-year in November 2024, up from a downwardly revised 1.3% rise in October. On a monthly basis, retail sales rose by 1.8% in November, marking the first increase in three months and rebounding from a revised 0.2% fall in October.

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3. In the limelight:? IiAS Dividend and Buyback Study 2024

IiAS’ analysis, based on FY24 financial data, estimates the aggregate value of on-balance-sheet cash and cash equivalents for the BSE 500 constituents at Rs. 29 trillion, representing 7.7% of the index’s market capitalisation.? In the absence of a clear plan to use the excess cash, boards must consider returning the cash to shareholders in the form of dividends or buybacks. Given the changed external environment, boards believe the need to build a war chest for growth and resilience.

• Top five companies with largest estimated excess cash reserve: HCL Technologies Limited, Bharat Electronics Limited, LTIMindtree Limited, Siemens Limited and Sun TV Network Limited.
• Companies with excess cash >75% of their on-balance-sheet cash: Oracle Financial Services Software Limited, ZF Commercial Vehicle Control System India Limited, Sun TV Network Limited, Pfizer Limited, Finolex Cables Limited and Graphite India Limited.
• Companies which can step-up dividend yield by 10% in the absolute: Graphite India Limited, Rites Limited, Sun TV Network Limited, Bharat Dynamics Limited and Finolex Cables Limited.

4. Market Outlook –Market sentiment to improve heading into the new year.

Markets bounced back this week after the sharp correction seen in the previous week. The gains were however marginal as the Nifty traded in a narrow range through the holiday shortened week that had only four trading sessions. Nifty finally gained 0.96% W-o-W.

Defensive sectors like Nifty Pharma has broken out of its recent trading range. Another sector to watch is the Nifty IT as it remains in an intermediate uptrend and the selling intensity has reduced in the last one week. The index is now near some healthy supports and could bounce back in the near term.? There are signs of improvement in IT sector hiring and that could lend support to urban recovery.? Investment from multinationals looking to reduce their operation costs appears to be benefiting Indian IT sector, and the outlook for 2025 looks more positive.??

After the post-festive moderation, economic activity rebounded in the first fortnight of December. Payment and mobility indicators improved from the previous fortnight. Investors are poised to ring in 2025 on an optimistic note as market sentiment continues to improve heading into the new year.