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Indian markets ended lower with significant losses on Monday, after trading in green terrain for most part of the day, as late hour selling mainly played spoil sport for domestic indices amid weak global cues. Today, markets are likely to get a cautious start amid weakness in global peers. Spike in the US 10-year yields likely to dampen sentiments in the markets. All eyes will be on the three-day monetary policy meeting of the Reserve Bank of India which will start today. There will be some cautiousness as global ratings agency Fitch said the fiscal deficit target of 4.5% of gross domestic product in FY26 would be a challenge for the government amidst a focus on capex to support growth. Fitch projects the Indian economy to grow 6.5% in FY25, helped by 11% growth in government capex. However, Foreign fund inflows likely to aid sentiments. Foreign institutional investors (FIIs) net bought shares worth Rs 518.88 crore on February 5, provisional data from the NSE showed. Some support will come as the Organization for Economic Co-operation and Development (OECD), in its latest interim economic outlook, raised India’s growth outlook for 2024-25 (FY25) to 6.2 per cent from the 6.1 per cent estimated earlier in its November outlook. It said the emerging-market (EM) economies have generally continued to grow at a solid pace, despite tighter financial conditions, reflecting the benefits of improved macroeconomic policy frameworks, strong investment in infrastructure in many countries, including India, and steady employment gains. Also, the OECD raised its 2024 world economic growth forecast but warned that the Middle East conflict posed a risk, with disruptions in Red Sea shipping threatening to increase consumer prices. Banking stocks will be in focus as S&P Global Ratings said strong credit growth of Indian banks could moderate to 12-14 per cent in the next fiscal if deposit growth remains tepid. It added rising cost of funds and potential rate cuts in fiscal 2025 will squeeze net interest margins. Meanwhile, BLS E-Services shares will list on the bourses today. Moreover, investors will continue to keep close eye on earnings of many companies for more directional cues. 

The US markets ended lower on Monday after Federal Reserve Chair Jerome Powell pushed back firmly against speculation that rate cuts would be imminent, while investors assessed a mixed bag of U.S. earnings reports. Asian markets are trading mixed on Tuesday ahead of the Bank of Australia’s interest rate decision later in the day.

Back home, Indian equity benchmarks erased all of their initial gains and ended lower on Monday on fag-end selling amid weakness in Asian markets. After making a positive start, the markets gained some traction and oscillated in a narrow range for most part of the day, as traders got support after provisional data from the NSE showed Foreign institutional investors (FIIs) net bought shares worth Rs 70.69 crore on February 2. Some support also came in as the Reserve Bank of India (RBI) said India’s forex reserves increased $591 million to $616.733 billion for the week ended January 26.  Some support also came as CRISIL’s latest report stated that the Indian economy is expected to grow at an average rate of 6.7% per annum until the end of the decade. The economy will grow at this rate between the financial years 2024 to 2031, a notch above the pre-pandemic average of 6.6%. According to CRISIL, the key contributor to this trend will be capital. Markets managed to trade in green in afternoon deals, as India's services activity rose at the sharpest rate of expansion in January 2024. The HSBC India Services PMI came in at 61.8 in January, up from 59 in December. It is the highest since July 2023 when the PMI was 62.3. A reading above 50 shows that the sector is expanding. Some optimism also came as senior government officials and industry players have discussed ways to enhance collaborations and create a clear action plan for successful implementation of PLI schemes. However, a sharp dip in the final hour pushed the indices lower. Traders took a note of the Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey’s statement that the central government and Central Public Sector Enterprises (CPSEs) are estimated to monetise assets worth Rs 1.50 trillion in the current fiscal (FY24), a tad lower than the targeted of Rs 1.75 trillion. Finally, the BSE Sensex fell 354.21 points or 0.49% to 71,731.42 and the CNX Nifty was down by 82.10 points or 0.38% to 21,771.70.

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