According to Abhay Agarwal from Piper Serica, the market’s recent behaviour reflects a tug of war between strong domestic support and the absence of meaningful foreign inflows.
“We have been seeing this, in fact, in the last couple of weeks of December as well, that the markets have very strong support at the 26,000 level, where domestic flows are adequate to keep it at that level and not let it fall,” Agarwal said.
However, the missing piece in the rally continues to be foreign portfolio investors (FPIs). Agarwal pointed out that despite domestic resilience, sustained upside remains difficult without overseas participation.
“Our problem for the entire last year was that we saw $18 billion of FPI outflows, and I think that outflow will not reverse or turn into an inflow until we have a trade deal in place,” he said.
He added that foreign investors are likely to remain on the sidelines until there is clarity, not just on announcements or advanced discussions, but on the actual signing of a trade agreement. The delay itself is fuelling market anxiety.
“The fear is that if the trade deal is getting delayed, why is it getting delayed, and whether it could lead to the US putting further penal tariffs on Indian companies or exporters,” Agarwal noted. This uncertainty, he believes, is preventing markets from entering a sustained, secular uptrend. Selling pressure, largely driven by FPIs along with bouts of profit-taking, has kept indices range-bound.
“In the near term, we will muddle around in this range, but the rally will broaden. You will see more participation from smaller and midcap stocks, which was missing last year,” he said.
IT earnings unlikely to excite
With TCS set to kick off the earnings season on January 12, expectations from the IT sector remain muted. Agarwal believes the sector’s challenges are structural rather than cyclical, and patience among investors is wearing thin.
“It is a very large component of the index, with several large-cap companies, and this space has massively disappointed because of low earnings growth,” he said. “Investors have been quite patient, still holding on and waiting for a reversal.”
He does not expect a meaningful improvement in commentary or guidance this earnings season.
“I am not expecting any remarkable change in fortunes or a significant uptick in guidance. Managements will continue to guide for 2% to 5% growth, maybe lower, in constant currency terms,” Agarwal said.
According to him, large software services companies are struggling to revive growth due to internal issues that need fixing, rather than changes in the global environment.
“Until that happens, I do not think there is anything for investors to expect in terms of double-digit returns. They may become value stocks and attract value investors, but I do not think these are growth stocks anymore,” he said, adding that expectations from the IT pack for the year remain low.
Retail slowdown needs more data
On the retail front, recent quarterly updates have raised concerns, especially as weakness has started appearing in value retail as well. Same-store sales growth has slowed across several players, with some even reporting sharp declines.
Agarwal cautioned against drawing broad conclusions from a single quarter, noting that inventory management often distorts short-term performance.
“In retail, whether big box or small box, inventory valuation and accounting play a very critical role. There are quarters when companies push sales just to get rid of old inventory,” he said.
He believes value retail in non-tier I cities continues to show resilience despite growing competition from online platforms.
“Value retailing, especially in non-tier I cities, is quite robust. Even with strong competition from e-commerce companies, small box retailers have held up well because many customers still prefer to go out and buy,” Agarwal said.
He suggested waiting for at least another quarter of data to determine whether the recent weakness reflects a genuine trend or a one-off adjustment.
“The big players are definitely struggling, but that is more of a large-city phenomenon related to footfalls rather than a structural issue across retail,” he added.
For now, the broader market narrative remains one of consolidation, with domestic liquidity providing a floor, while global uncertainty and cautious foreign investors limit the upside.
