Weekly Wrap-Up

Market Moves

Indian Market Summary – Nifty at 10-Month Low, Small-Caps Bear Brunt of Selling

The market declined for the eighth consecutive session, marking its longest losing streak in two years. This decline was driven by persistent foreign institutional investor (FII) outflows and growing concerns over potential retaliatory tariffs from the United States.

The Nifty index fell by 2.68% for the week, recording its lowest close since May 31, 2024. This week’s downturn marks its largest weekly loss in two months, ending a two-week winning streak.

The broader market suffered even more, with the Nifty Midcap 100 plunging 7.38% and the Nifty Small-cap 100 experiencing a notable 9.41% drop. From its all-time high, the Nifty Small-cap 100 has now fallen 22.63%, significantly exceeding the Nifty's decline of 13.33%.

The recent swing high of 23,235 is expected to act as immediate resistance. A decisive move below the 22,750-22,800 zone could trigger further selling, potentially pushing the index toward its next support level?at?22,460.

Global market summary - US markets flirt with All-Time Highs

Major U.S. stock indices rose this week despite ongoing concerns regarding tariffs and inflation. The S&P 500 increased by 1.5%, finishing just four points shy of its record highs, while the Nasdaq jumped 2.6%. The Dow Jones also stayed close to its all-time high, just one percent below its peak.

Treasury yields fell notably on Friday following disappointing January retail sales figures. The weaker consumer spending was partly attributed to disruptions caused by wildfires in Los Angeles and severe winter weather affecting other regions of the country.

Corporate earnings continue to exhibit remarkable strength, with fourth-quarter results projecting a year-over-year growth of 16.4%—the highest rate since 2021. So far, approximately 77% of S&P 500 companies have reported their earnings. Investors are now focusing on Walmart's upcoming earnings report for new insights into consumer health amidst rising inflation and potential price pressures stemming from President Trump's tariff policies.

In international markets, European equities have taken the lead in 2025, surpassing their U.S. counterparts after lagging for much of the previous decade. European stocks have appreciated more than 12% year-to-date, significantly outperforming the S&P 500's 4% gain. Meanwhile, the British economy displayed surprising resilience, growing by 0.1% in the fourth quarter of 2024, contrary to analysts' expectations of a slight contraction.

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Economic Indicators

India

• The annual inflation rate in India fell to 4.31% in January of 2025 from 5.22% in the previous month. From the previous month, the Indian CPI fell by 0.97%.
• Industrial production in India grew by 3.2% year-on-year in December 2024, slowing from a downwardly revised 5% rise in November and falling short of market expectations of a 3.9% gain.
• India’s wholesale prices climbed by 2.31% year-on-year in January 2025, slightly easing from a 2.37% rise in December 2024.

US

• The annual inflation rate in the US edged up to 3% in January 2025, compared to 2.9% in December 2024. The monthly rate edged up more than expected to 0.4%.
• The producer price inflation in the United States stood at 3.5% year-on-year in January 2025, unchanged from the previous month's reading.
• Industrial production in the United States increased by 0.5% in January 2025, surpassing market expectations of a 0.3% rise following an upwardly revised 1% rise in December.
• Retail Sales in the United States increased 4.2% year-on-year in January 2025, following an upwardly revised 4.4% rise in December 2024.

UK

• The British economy expanded 1.5% year-on-year in December 2024, the strongest performance since October 2022, following an upwardly revised 1.1% growth in November 2024.
• Industrial production in the UK rose by 0.5% month-on-month in December 2024, rebounding from an upwardly revised 0.5% fall in the previous month.
• The UK's trade deficit narrowed to ￡2.82 billion in December 2024, down from a downwardly revised ￡4.35 billion in November, marking the smallest trade gap since September.

Eurozone

• Eurozone industrial production fell by 2.0% year-on-year in December 2024, following a revised 1.8% drop in November.
• The Eurozone's annual GDP growth rate was confirmed at 0.9% in the fourth quarter of 2024, unchanged from the previous period and in line with the preliminary estimate.

Germany

• The annual inflation rate in Germany was confirmed at 2.3% in January 2025, easing from 2.6% in December and matching preliminary estimates.

Japan

• Producer prices in Japan increased by 4.2% yoy in January 2025, accelerating from an upwardly revised 3.9% gain in the prior month.

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In the limelight – Gold Deliveries in Comex

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Concerned about potential tariff risks under the new Trump administration, banks and major financial institutions are moving swiftly to hedge their exposure to precious metals. Their primary strategy involves short-selling or forward-selling in the COMEX market while simultaneously purchasing physical gold from international sources for import into the United States. This hedging reflects their wariness of possible tariffs that could significantly increase import costs. As a result of these concerns, financial institutions have substantially increased their gold imports into the US over the past two months.

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Market Outlook – Are We There Yet?

The Indian equity markets continue to exhibit weakness, trading below critical short-term moving averages amid mounting pressure. ?Last week witnessed significant selling pressure in the mid-cap and small-cap segments, with several stocks experiencing sharp corrections.

Brent crude oil and the U.S. Dollar Index have begun to decline. This downturn in crude prices and the dollar index is favourable for emerging markets like India.

The benchmark Nifty index has shown resilience around the crucial 22,800 mark, managing to stage minor rebounds from this support level on multiple occasions. If the index defends the 22,800 level, it could trigger short covering, potentially leading to a technical bounce. A decisive move below the 22,750-22,800 zone could trigger further selling, potentially pushing the index toward its next support level?at?22,460.

US stock markets will remain closed for trading activities on Monday, February 17, 2025, for President's Day 2025, to mark the birth anniversary of the first US President George Washington.

The daily ratio chart of MSCI India against the MSCI world index has reached extreme levels; we can expect the underperformance of Indian indices to end soon.

The global markets are scaling to new all-time highs, which could support Indian markets in limiting the downside from here.

While Indian market breadth remains subdued, technical indicators are fast approaching an oversold territory, suggesting a potential reversal. The percentage of stocks trading above their 200-day moving average in the NSE500 universe has fallen to 14%. Historically, significant downtrends have formed bottoms near such levels.