Analyst Call Tracker: Banking stocks hogged the limelight in December, rollercoaster month for Nifty 50

FIIs sold stocks from the oil and gas, autos and FMCG sectors in December.

Instead of a celebratory cheer, the last month of 2024 ended with investors licking their wounds and seeking the comfort of better fortunes in the new year. For the markets, December 2024 can be decisively split in two: the optimistic half and the negative half.

The Nifty 50 and Sensex embarked on a rollercoaster ride, swinging up 2.5 percent in the first two weeks of the month, giving investors reason to believe that November woes would be left in November. However, what goes up, must come down (at least in the short-term).

From December 13 highs, the Nifty cracked a whopping 4.5 percent, slipping back into the correction territory it last saw in November. Bears rampaged on Dalal Street, swiping gains away from the broader markets and sectoral indices.

Neither global factors nor global investors were friends in December. The RBI’s CRR cut was barely a salvo, while weak economic projections weighed heavily on sentiment.

Federal Reserve’s Hawkish Cut

The biggest headline in December 2024 was the Federal Reserve’s hawkish stance and fewer rate cut projections for 2025.

While the central bank slashed the key lending rate by 25 basis points in December, Chairman Jerome Powell indicated that given the hotter-than-expected inflation prints, steady labour market and growing economy, the monetary policy easing cycle would likely slow down.

The key evidence of this claim? The changing dot plot. In September, the Federal Reserve’s projections indicated that there would likely be four rate cuts in 2025. However three months later, the dots on the Fed’s plot painted a different picture: going ahead, the trajectory of rate cuts would be much shallower, with only two cuts - to the tune of 50 basis points - indicated.

As expected, markets didn’t take this kindly. Wall Street sulked in the red, and frontline indices Nifty 50 and Sensex tumbled over 1.5 percent on December 19.

Interest rate-sensitive and export-oriented indices sank with disappointment. Nifty IT, Nifty Pharma, and Bank Nifty closed with sharp cuts.

CRR: Cautious & Receptive RBI

Back home, the Reserve Bank of India (RBI) was also in focus for the month. Saddled with rising inflation and stagnant consumption, the central bank walked a tightrope between growth and inflation.

Unable to slash the repo rate, with CPI at a 14-month high of 6.21 percent, the RBI cut its cash reserve ratio (CRR) by 50 basis points to ease liquidity.

Even without a repo rate cut, BFSI stocks showed promise. Of the ten firms with the highest optimism in December, five were in the BFSI sector. Analysts believe liquidity conditions will ease in 2025, boosting ratings for these stocks.

Analysts believe the tight liquidity conditions will ease 2025 onwards, causing the ratings on these counters to steadily rise.

FIIs Flee?

Foreign institutional investors (FIIs) began December on a buying spree, investing $3.1 billion in Indian equities. However, sentiment reversed mid-month as FIIs booked profits, pulling $1.9 billion off the table, including $1 billion in the four sessions after Christmas.

Among sectors, IT, pharma, BFSI and capital goods saw the most positivity, with FIIs pumping these sectors with cash. On the flip side, oil and gas, autos and FMCG stocks saw the most selling.

This selling can be seen in the shares with maximum pessimism, with consumption and auto stocks making up six of the ten counters in the list.

So what’s next?

Well with the upcoming Union Budget and earnings season, the domestic markets are treading with caution. Further, President-elect Donald Trump is set to return to the White House later this month, which could lead to the threats of tariffs turning into reality.

Stock-specific moves and value-based investing seems to be the name of the game, according to analysts, who believe that the time for exaggerated returns has come to an end.

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