At a time when market experts have been advising investors to prune returns’ expectations from 2025, the benchmark indices’ 2.3% surge in the first two days has raised hopes that the stock market may deliver strong returns this calendar year. Market experts, however, aren’t impressed, pointing out that the fundamental concerns of expensive valuations, earnings downgrades, shallow interest rate cuts, and low gross domestic product remain. They also caution about near-term uncertainties with Donald Trump taking office in the US on January 20, and the US Federal Reserve’s policy meeting at the end of the month.
The last two days have been an exception simply because domestic, and on Thursday, even foreign investors are front-loading their expectations on hopes of a pick-up in consumption and better-than-expected corporate earnings in the upcoming results season.
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Other factors that are giving a leg-up to this rally include good auto sales numbers, decent goods and services tax collections in December, strong quarterly deposit growth by banks, and a positive outlook for the technology sector.
VK Vijayakumar, chief investment strategist at Geojit Financial Services, said Thursday’s rally was “totally unexpected”, given the sustained selling by the FPIs amid the strong dollar and the high bond yields in the US.
“Leading indicators available so far do not indicate a pick-up in economic growth. GST collections for December have declined 2.97% month-on-month, indicating continuation of the slowdown. Therefore, Q3 corporate earnings are unlikely to register a rebound. This means investors have to focus on segments which will buck the slowdown like IT, pharma and to some extent financials. Luxury consumption like hotels, jewellery and aviation also are likely to post good results,” he said.
While the market had been extremely oversold for several days, with FPIs holding heavy short positions in index futures—they lacked a trigger for any significant short-covering move on Thursday, said Santosh Meena, head of research at Swastika Investmart.
“While DII buying can support the market at lower levels, that is not sufficient to take the market higher. For higher market levels, we will have to wait for indications of growth and earnings recovery,” Vijayakumar said. However, he expects the rally in high quality large caps, which have been beaten down lately,
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