Markets to see sector-specific action as Q3 earnings kicks off

We expect the markets to witness stock/sector specific action on the back of pre-quarterly business updates to be released this week by companies, ahead of their Q3 results that will begin with TCS earnings announcement on January 9. On the macro-economic front, investors will watch out for key data including India and United States services PMI for December, US jobs data, India’s industrial production, amongst others. 

The NSE Nifty, after delivering 9 per cent returns in 2024, celebrated the New Year with 2.3 per cent gains over the first two days of 2025. Broader market indices Midcap100 and Smallcap100 clocked weekly gains of 1.7% and 1.5 per cent respectively. Oil and gas stocks were in focus as Brent crude prices rose to a 3-month high above $76 per barrel. Auto stocks rallied, fuelled by strong December sales figures. PSU Banks gained after strong Q3 business updates from Punjab National Bank and Bank of Maharashtra in the last week.

India’s manufacturing PMI closed the year at a 12-month low of 56.4 in December. The pace of growth of new orders was the slowest in a year, but there was some positive momentum on the export side. Meanwhile, US weekly jobless claims hit an eight-month low as the labour market remains resilient, reinforcing the Federal Reserve's projections for fewer interest rate cuts this year. 

GST collections stood at Rs 1.77 lakh  in December, against Rs 1.65 lakh crore in the same period last year, driven by higher revenues from domestic transactions. Government’s total spending in April-November 2024 stood at Rs 27.4 lakh crore, accounting for 56.9 per cent of FY25 budget estimates, the lowest in at least a decade. The government spending has been slow in 2024 due to the national elections and is likely to fall short of the annual target for FY25.

Within the IT space, macro uncertainty is gradually easing and we expect the outlook for technology spending to improve in 2025. We expect tier-2 IT companies to continue to outpace tier-1 companies in growth during the quarter. The most important catalyst for the sector, after the Q3 results, would come when client budgets for 2025 are finalized.

The past year experienced a slowdown in earnings and consumption, geopolitical uncertainties, and high valuations in some mid- and small-cap sectors. 2025 may alleviate some concerns, with a gradual recovery in corporate earnings and consumption expected due to increased government spending in early part of the year, and improved rural incomes after a successful kharif season. Investors will closely track the policy announcements in the Union Budget and developments in global trade after the new US administration under Trump’s leadership takes charge.

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