Is the market sentiment in India turning bleak? Here's what is happening
With the general elections well and truly underway, domestic equity markets have found themselves unexpectedly enveloped in a cloud of uncertainties originating from across the seas. The escalations of tensions in the Middle East, coupled with the rise in global crude oil prices, have heightened their anxieties, casting a pall over market sentiment.
Iran’s aerial attack on Israel dragged the benchmark equity index BSE Sensex down nearly 4% in just five trading sessions to 72,489 on April 18 from its all-time intraday high of 75,124 scaled on April 9. The 30-share index rallied nearly 25% in 2023-24.
Going ahead, analysts think that volatility will rule the roost and investors should be ready to lap up any opportunities that come their way. But, a majority of market participants believe that the expected reduction of interest rates will be delayed.
Kranthi Bathini, Equity Strategist at investment management firm WealthMills Securities, says, “Geopolitical issues and the Israel-Iran conflict are going to create pressure on crude oil prices, which will create uncertainty on the quantum of rate cuts, and markets don’t like uncertainty.”
Brent crude oil, which was hovering around $75 per barrel in January, is now trading close to $90 per barrel in international markets.
Hardik Shah, Director at CareEdge Ratings, says, “We expect an upward bias in crude oil prices in the near term. But in case the situation between Israel and Iran worsens, it may lead to a spike in prices. However, India still has a decent share of the supply of Russian crude, which accounted for 30% of India’s total imports by the end of FY24.”
The recent selling has also exposed cracks in the broader markets. Both the BSE MidCap and the BSE SmallCap indices have declined more than 1% since April 9. On the NSE, the Nifty50, which touched its all-time high of 22,775 on April 10, also declined 3.4% to around 21,996 on April 18.
Brokerage firm Incred Equities sees the 50-share index at 24,084 in FY25, indicating single-digit upside from current levels. It also said that delays in interest rate cuts, an unclear mandate in the General Elections, and geopolitical issues are key downside risks. It prefers large-caps over the mid- and small-cap indices.
Samir Bahl, CEO-Investment Banking at Anand Rathi Advisors, says, “The escalation in the conflict between Iran and Israel is a serious development and will likely impact oil prices. The Indian markets will be pressured over the short term as well. However, the Indian economy’s fundamentals and its growth trajectory remain firm over the long term.”
India’s merchandise exports hit a 12-month high of $41.7 billion in March. On the other hand, imports dipped 4.7% month-on-month to $57.3 billion in March. Consequently, India’s trade deficit narrowed to $15.6 billion, its second-lowest level since April 2023. Meanwhile, the India Meteorological Department has projected above-normal rainfall for the monsoon season. If the spread of the monsoon is good it should help strengthen the recovery in the rural market. All eyes are on post-election economic policy action and priorities of the new government.
Independent market analyst Anand Tandon says, “Elections can create volatility in the near term. Therefore, you need to keep some dry power or cash ready to buy stocks when the opportunity arises. It is advisable to reduce your position or create some portfolio hedges.”
@iamrahuloberoi
