Indian Stock Market Keeps Positive Sentiment as RBI Adopts More Realistic Approach

The Indian stock market continues to reflect a positive outlook sparked by a resurgence in interest from foreign institutional investors (FIIs). This renewed optimism is attributed to improving core sector outputs for October and consistent performance in the service purchasing managers' index (PMI), indicating a potential recovery, experts noted on Saturday.

FIIs have been returning to the Indian markets, driven by expectations that the Reserve Bank of India (RBI) will adopt a more dovish monetary policy. This shift in policy stance has helped bolster investor sentiment.

According to Vinod Nair, Head of Research at Geojit Financial Services, "RBI is becoming more realistic, as evidenced by its recent revision of the growth forecast for FY25. The central bank's decision to enhance liquidity in the financial system by cutting the cash reserve ratio (CRR) by 50 basis points illustrates its commitment to maintaining macroeconomic stability."

On Friday, the stock market closed relatively stable. The Sensex ended the day at 81,709.12, while the Nifty finished at 24,677.80, maintaining a steady position above the crucial support level of 24,650. Om Mehra, Technical Analyst at SAMCO Securities, commented, "The primary trend appears to be positive, with Nifty trading near the upper band of the Donchian Channel, suggesting potential bullish momentum ahead."

Moreover, the volatility index (VIX) for India remains low, staying below the 15 mark. This indicates a contraction in market volatility and reflects reduced investor fear in the current climate.

Investors are increasingly focusing on momentum stocks, anticipating that improvements in government capital expenditure (capex) could provide a boost to sectors such as infrastructure, capital goods, real estate, cement, and metal industries as the fiscal year progresses.

Public sector banks have witnessed stronger performance, thanks to the liquidity support from the RBI. As expectations grow for a positive outlook from the February monetary policy meeting, market analysts believe inflation rates are likely to moderate in the upcoming quarter, primarily aided by seasonal corrections in vegetable prices, kharif harvest deliveries, and expected rabi crop yields.

Siddarth Bhamre, Head of Institutional Research at Asit C Mehta Investment Intermediates Ltd, remarked, "While inflation has shown a slight uptick, it is expected to remain manageable. Influencing factors such as soil moisture levels, water reservoir capacities, and seasonal drops in vegetable prices indicate that food inflation could decline, which is a significant concern for many."

Looking ahead, the direction of the market will likely be influenced by the upcoming release of US payroll data and the US consumer price index (CPI) inflation figures. These will provide insights that may affect the Federal Reserve's decisions in its December meeting.

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