• Indian stock market maintains a positive outlook, with foreign institutional investors returning and the RBI adopting a more realistic growth forecast.
• The market closed flat on Friday, with the Nifty holding steady above the crucial 24,650 support level.
• Investors are accumulating momentum stocks, with PSU banks outperforming amid a liquidity boost by the RBI.
• The market's direction will be influenced by international factors such as US payroll and CPI inflation data, but current trends suggest sustained bullish momentum.

The Indian stock market has been maintaining a positive outlook, buoyed by a turnaround from foreign institutional investors (FIIs) who are returning to India in anticipation of a dovish monetary policy by the Reserve Bank of India (RBI). This positive sentiment has been sustained throughout the week, with the core sector output in October and stability in service PMI data showing signs of recovery.

The RBI has turned more realistic with a revision on its growth forecast for FY25. This move, coupled with the reduction of the Cash Reserve Ratio (CRR) by 50 basis points, has boosted liquidity in the financial system. Vinod Nair, Head of Research at Geojit Financial Services, emphasized that maintaining macroeconomic stability remains crucial.

The market closed flat on Friday, with the Sensex settling at 81,709.12 and the Nifty ending at 24,677.80. The Nifty is holding steady above the crucial 24,650 support level.

Market Trends and Investor Sentiment

Om Mehra, a Technical Analyst at SAMCO Securities, noted that the primary trend remains positive, as the Nifty trades near the upper band of the Donchian Channel, which is trending higher. This is a signal of potential bullish momentum.

India's volatility index (VIX) remains subdued, hovering below the 15 mark. This suggests a contraction in volatility and reduced fear in the market. Investors are now accumulating momentum stocks as the expected pick-up in government capital expenditure may provide some impetus to infra, capital goods, realty, cement, and metal industries in the second half of this fiscal year.

Public Sector Undertaking (PSU) banks have outperformed amid a liquidity boost by the RBI. The outlook for the February monetary policy meeting has also turned positive as inflation is likely to moderate in Q4. This is supported by seasonal corrections in vegetable prices, kharif harvest arrivals, and anticipated rabi output.

Inflation Control and Market Predictions

Inflation, though slightly higher, may continue to remain under control. Factors such as soil moisture content, reservoir levels, and seasonal winter vegetable price correction suggest that food inflation may show a declining trend. Siddarth Bhamre, Head of Institutional Research at Asit C Mehta Investment Interrmediates Ltd, pointed out that this has been a point of concern.

Looking ahead, the market direction will be influenced by the release of US payroll and US CPI inflation data. This will provide some insights into the Federal Reserve's December meeting.

In a similar vein, the Nifty has rallied for the third consecutive week, hitting a one-month high.