Weak FII flow, pressure on rupee remain key headwinds

This week, while the headline indices (Nifty & Sensex) are expected to trade in a wider range, we expect heightened stock-specific and broader-market volatility. Weak foreign participation and pressure on the rupee remain key headwinds. That said, any formal breakthrough on the India–US trade agreement could act as a meaningful catalyst and help shift sentiment more decisively to the upside. The US Fed has cut rates for the third time, with its latest 25 basis points move lowering global rate expectations and supporting risk appetite, providing a constructive backdrop for Indian equities and flows.

Primary market activity also remains strong, with major mainboard offerings — including ICICI Prudential AMC and Wakefit — set to open this week, collectively aiming to raise nearly Rs 11,900 crore. Key data releases to monitor include India WPI, Manufacturing and Services PMI, US PMI and employment data, UK and EUR CPI, and policy decisions from the BoE, BoJ and ECB.

Last week, the Nifty fell for the second straight week, declining 0.5% amid sharp intraday swings and sustained weakness in the broader markets. Mid-cap and Small-cap indices were down 0.6% and 0.7% respectively, reflecting continued risk-off sentiment. Sectoral performance was largely negative, barring Nifty Metal, which gained 1.8%. On the losing side, Nifty PSU dipped 1.7%, followed by Nifty FMCG, which was down 1.3%.

Global cues remained pivotal as the Fed’s rate cut lowered global rate expectations and supported risk appetite after early consolidation. Commodity-linked sectors benefited from firmer international prices. Metals stayed firm through the week as the softer dollar post the Fed cut aided sentiment. Silver hit a fresh record high of $64.31 per ounce on December 11, extending its industrial-led rally. Gold recovered, holding near a seven-week high, while copper stayed elevated on tight supply and expectations of continued fiscal support in China. Domestic liquidity stayed constructive, with equity mutual fund inflows rising 21% month-on-month in November to Rs 29,900 crore, driven by firm earnings, stable growth and benign CPI inflation at 0.7% for the month. Meanwhile, the rupee weakened to a fresh record low of 90.47 against the US dollar as corporate dollar demand and outflows outweighed the softer Fed stance.

Engagement on the India-US trade agreement has gained traction after a prolonged pause. Officials indicated that most pending issues have now been ironed out, with discussions progressing as a US delegation engages in New Delhi to firm up the first tranche of the pact — a development that could turn sentiment if it leads to a formal announcement.

On the policy front, NITI Aayog’s recommendations to deepen the corporate bond market — including tax harmonisation and targeted incentives — improved sentiment across financials. The RBI’s guidance suggesting a prolonged soft-rate environment reinforced expectations of sustained economic momentum and stable financial conditions.

Sectorally, the life insurance industry delivered its strongest performance in nearly three years, with individual WRP up ~27% YoY and private players’ share rising to ~75%, aided by GST-led affordability and broader distribution expansion. India’s hotel industry posted a strong 1HFY26 with ~15% YoY revenue and EBITDA growth, led by higher ARR and improving occupancies. The upcoming launch of the Navi Mumbai International Airport on December 25, is set to significantly boost hospitality demand in Navi Mumbai amid limited branded room supply. 

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