Indian equities are poised for a cautious start on Wednesday, following government projections indicating that India's economic growth might decelerate to its slowest in four years during the fiscal year 2024-25. The projected growth for the Gross Domestic Product (GDP) is 6.4 percent for the fiscal year ending March 31, which would represent the most sluggish expansion since the pandemic year of 2020-21, after achieving an 8.2 percent growth in the previous year. This anticipated growth is also below the earlier government estimate of 6.5-7.0 percent.
A mix of global signals, a stronger U.S. dollar, rising American bond yields, escalating oil prices, and apprehension leading up to the third-quarter earnings season may continue to impact market performance as the day advances. Analysts note that the market's sentiment is likely to remain volatile until Donald Trump assumes office as the U.S. President on January 20.
On Tuesday, key market indices Sensex and Nifty finished with modest gains, bouncing back from their most significant downturn in three months amid concerns over the HMPV virus outbreak in the country. The Indian rupee logged its most substantial one-day gain since late November, closing 12 paise higher at 85.71 against the U.S. dollar, supported by foreign banks' dollar sales and the Reserve Bank of India's intervention measures.
In the broader Asian markets, stocks exhibited a mixed performance early today, as recent indications of a robust U.S. economy cast doubts over potential U.S. interest rate cuts in 2025. U.S. Treasury yields remained stable after a prior session decline across the curve. The latest auction of 10-year U.S. Treasury notes yielded the highest rate since 2007, following strong data on U.S. service-sector activity and job openings.
The U.S. dollar sustained its strength, whereas the Japanese yen hovered near levels that previously prompted intervention, and gold prices remained steady, just under $2,650 per ounce, amidst a hawkish perspective on Federal Open Market Committee (FOMC) rate policy.
Raphael Bostic, President of the Federal Reserve Bank of Atlanta, advocated for a cautious approach in policy-making due to inconsistent progress in reducing inflation. Meanwhile, oil prices climbed higher, influenced by signals of constrained output from Russia and OPEC, alongside reports of declining U.S. oil inventories.
U.S. equity markets experienced a downturn late Tuesday, with rising concerns about inflation and interest rates resurfacing after the release of positive economic indicators. The Nasdaq Composite, with a strong technology focus, dropped 1.9 percent, the S&P 500 fell by 1.1 percent, and the Dow Jones Industrial Average decreased by 0.4 percent as ten-year Treasury yields peaked at an eight-month high.
Expansion in the U.S. service sector observed in December, coupled with a near two-year high in input prices and an unexpected increase in job openings in November, led traders to delay expectations for a Federal Reserve interest rate cut this year.
In Europe, stock markets mostly closed higher on Tuesday, despite inflation in the eurozone reaching a five-month high in December. The pan-European STOXX 600 index increased by 0.3 percent, with Germany's DAX and France's CAC 40 both appreciating by 0.6 percent, while the U.K.'s FTSE 100 slightly decreased.
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