Markets await key macro events for direction

This week, Indian equities are likely to remain in consolidation mode with a positive bias, supported by RBI’s 25 basis points rate cut and liquidity infusion last week, expectations of policy easing by the US Federal Reserve, steady domestic flows and rotational sectoral strength. Primary market activity is set to remain strong with 4 mainboard IPOs slated to open for subscription this week, collectively raising over Rs 3,700 crore. Key macro events during the week include Fed’s interest rate decision, India’s retail inflation for November 2025, Japan’s Q3 GDP and US job openings data, that would influence the global market cues. Further, markets would also react to the US Consumer Price Index (CPI) data released after market-hours on Friday.

The RBI announced a unanimous 25 basis points cut in the repo rate, bringing it down to 5.25 per cent, while also outlining plans for Rs 1 lakh crore in OMO purchases and a three-year USD/INR swap of $5 billion in December to inject additional liquidity into the banking system. Markets will now watch for the RBI commentary on policy transmission and credit growth.

Last week, Nifty touched a fresh all-time high of 26,325.80 but ended the week with a marginal loss of 0.1 per cent at 26,186 on account of persistent FII outflows and weakness in INR. The FIIs offloaded nearly Rs 10,000 crore up till Thursday last week, dampening market sentiments. The broader markets witnessed selling pressure with Nifty Midcap100 and Smallcap100 ending lower by 0.7 per cent and 1.8 per cent respectively. Amongst sectors, IT was the top performer, gaining 3.5 per cent on the back of stronger dollar and rising expectations of a US Fed rate cut. Defence stocks were in limelight amid Russian President Vladimir Putin’s visit to India to attend the 23rd India-Russia Annual Summit. Meanwhile, PSU bank index ended lower by 1.6 per cent as the government clarified that it has no plan to raise the FDI limit in public sector banks, keeping the existing 20 per cent ceiling unchanged.

On the macro front, October IIP grew by a meagre 0.4 per cent YoY vs. 4.6% in September 2025. Manufacturing PMI recorded its weakest growth in 14 months in October, rising 1.8 per cent YoY (-2.8 per cent MoM). This decline was in tandem with the imposition of US trade tariffs on India and the sharp 11.8 pe rcent YoY slowdown in exports (both oil and core exports) in October. Meanwhile, India’s Gross GST collections for November 2025 stood at Rs 1.70 lakh crore, up 0.7 per cent YoY, driven by lower GST rates and increased compliance.

INR/USD crossed past the 90-mark, making a fresh all-time low, pressured by sustained foreign outflows and delay in India-US trade deal. India’s external account weakened in 2QFY26 as a sharp rise in gold imports widened the trade deficit, while subdued FII inflows weighed on the capital account, resulting in a deterioration in the balance of payments to 1.1 per cent of GDP (-USD10.9 b). For FY26, the wider trade deficit is likely to push the CAD/GDP ratio up to 1.2 per cent from 0.6 per cent in FY25. Given this trajectory, the CAD outlook will remain a key determinant of USD-INR depreciation.

Globally, Japan’s 30-year government bond yield rose to a record 3.43% last week. Rising Japanese yields may prompt institutional investors to reallocate capital towards safer, higher-return domestic assets, potentially impacting flows across markets including EMs like India. Overall, investor sentiment remains constructive in the near term, supported by healthy domestic liquidity, stable GDP growth.

(The writer is Head of Research, Wealth Management, Motilal Oswal Financial Services Limited)