Indian Stock Market Rally Stalls Amid Earnings Concerns and Inflation Woes

Indian stock indices ended largely unchanged on Tuesday, halting a recent rally that recovered some prior losses. Market momentum faces challenges from disappointing earnings and high inflation. Analysts caution the rally is temporary, as foreign investors remain net sellers, and the RBI's upcoming meeting holds significant market interest.

On Tuesday, major Indian stock indices saw minimal change, halting the upward trend that characterized the previous two trading sessions. Despite this pause, the recent rally has managed to reclaim nearly 4% of earlier losses.

The Sensex dipped slightly, closing at 80,004.06 points—down 105.79 points or 0.13%—while the Nifty settled at 24,194.50 points, a decrease of 27.40 points or 0.11%. These actions left the Sensex approximately 6,000 points short of its record high of 85,978 points. The downturn in the market is largely due to fund outflows, underwhelming second-quarter corporate earnings, and stubbornly high inflation rates.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, predicted that the current rally is unlikely to last due to looming earnings concerns. He noted, "The brief gains are primarily driven by short-covering and a positive sentiment stemming from Maharashtra election results, but these factors are transient." Despite recent interest from foreign institutional investors, Vijayakumar attributes their buying to MSCI rebalancing, particularly focusing on increased weightage for HDFC Bank.

Shrikant Chouhan, Head of Equity Research at Kotak Securities, pointed out bullish intraday activity but anticipates limited action moving forward due to overbought market conditions. Foreign portfolio investors (FPIs) are on track to finish November as net sellers in Indian equities for the second straight month, despite a four-month buying spree that ended in September. According to the National Securities Depository Limited (NSDL), the value of stocks sold by FPIs in November so far amounts to Rs 25,460 crore, although the rate of outflows has recently tapered.

Looking towards December, the market will closely watch the Reserve Bank of India (RBI) as it holds its bi-monthly Monetary Policy Committee (MPC) meeting for new directions. Persistent food inflation has impeded potential interest rate cuts. Additionally, economic growth figures for the July-September quarter, due at 4 PM on November 29, will be crucial. The Indian economy expanded by 6.7% between April and June, lagging behind the RBI's 7.1% projection.

(With inputs from agencies.)