Mumbai: India’s stock market has been facing a correction since late September, driven by escalating geopolitical tensions, rising oil prices, and weak corporate earnings. These factors are putting India’s premium valuations, which have been in place since May 2021, under threat. The current market correction has led to India underperforming against its Asian peers, with global investors turning toward the Chinese market due to its low valuations and recent economic stimulus efforts.
The rising crude oil prices, which have surged above $85 per barrel, are adding pressure to the Indian economy. Prolonged high prices threaten to impact inflation, the fiscal deficit, and India’s current account balance. Foreign Institutional Investors (FIIs) have been pulling out funds from the Indian market due to these factors, further intensifying the market’s decline.
Despite this, there was a glimmer of hope with the ruling party’s better-than-expected results in the recent Haryana and Jammu & Kashmir elections, which briefly boosted market sentiment. The Nifty50 index found temporary support at 24,800, though it remains vulnerable as it ended below the 25,000 mark. Analysts believe corporate earnings for Q2 FY25 will be a key indicator of the market’s near-term direction.
The Reserve Bank of India’s recent monetary policy review offered some relief, with a shift from ‘withdrawal of accommodation’ to a ‘neutral’ stance, though no rate cuts were announced. Sticky inflation remains a challenge, and while a rate cut may be on the cards in late 2024 or early 2025, much depends on global trends, particularly actions by the US Federal Reserve.
In terms of corporate earnings, while Q2 is expected to show an 8-10% growth in PAT (profit after tax) for Nifty50 companies, sectors like Oil & Gas, FMCG, Cement, and Banks continue to face headwinds. Telecom, Metals, and Power sectors show some resilience. However, ongoing concerns about global demand, domestic spending cuts, and inflation have resulted in weak Q1 and Q2 earnings, heightening the risk of further downgrades.
As investors reassess their portfolios amidst market volatility, promising sectors like consumption, FMCG, infrastructure, and chemicals are attracting attention, while others like real estate, IT, and pharmaceuticals may face near-term challenges.
