Why the Indian stock market stays resilient amid US market turmoil? EXPLAINED
Despite turmoil in the US stock market, the Indian stock market shows resilience in March, gaining 1.6% while US indices dropped significantly. The Nifty 50 remains largely unaffected by Wall Street's chaos, reflecting strong domestic sentiment amidst fears of a recession.
The Indian stock market, which has been under significant pressure since October last year, has exhibited remarkable resilience in March so far against the recent turmoil in the US stock market amid fears of a looming recession caused by US President Donald Trump's aggressive tariff policies.
Wall Street's chaos has not impacted domestic market sentiment much. In fact, the Indian stock market has remained largely unaffected by the sharp swings in the US market.
For example, key Wall Street indices, the S&P 500 and the NASDAQ Composite, have crashed 6 per cent until 12 March this month and 3 per cent this week, while the Indian stock market benchmark Nifty 50 has gained 1.6 per cent in March but is down just 0.40 per cent this week.
Why is the Indian stock market unaffected by the turmoil in the US market?
After the significant correction due to stretched valuation, weak earnings, growth slowdown and foreign capital outflow, the domestic market is discounting improvement on all these fronts.
On the growth front, higher government capex and increased consumption is expected to drive India's GDP in the next financial year.
According to Moody's ratings, India's economic growth is poised to be one of the fastest among large economies, following a temporary slowdown in 2024.
Moreover, another positive development is the decline in inflation, which the market had anticipated based on trends in food prices.
India's retail inflation eased to a seven-month low in February, driven by a slower increase in food prices. Retail inflation, based on the Consumer Price Index (CPI), was at 3.61 per cent in February, down from 4.26 per cent in January.
On the other hand, industrial output growth picked up in January after slowing down in the previous month due to a rise in manufacturing and mining activities.
The Index of Industrial Production (IIP) grew at 5 per cent in January, up from 3.2 per cent in the previous month, according to the latest estimates released by ministry of statistics & programme implementation (MoSPI).
"The domestic market is factoring in an improving macroeconomic situation. Growth is picking up, inflation is falling, and the recent market decline has improved valuations in the large-cap segment," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Vijayakumar pointed out that the market is also factoring in a rate cut by the Reserve Bank of India (RBI) in April.
"Domestically, we have strong tailwinds. The RBI's Monetary Policy Committee (MPC) is expected to cut rates in April, GDP growth is projected to improve, and earnings growth is set to strengthen starting next quarter (Q1FY26)," he said.
One of the key factors that has been weighing on heavily on the domestic market sentiment is strong foreign capital outflow. However, the intensity of selloff is receding and experts also expect the trend to reverse due to expected weakness in the US market and the plateauing of the Chinese market.
"The intensity of foreign capital outflows is decreasing and is likely to reverse soon. The US market may experience a deeper correction this year, as a recession in the US by year-end appears highly likely," said Vijayakumar.
"The plateauing of the Chinese market will also be a positive for India. While the Chinese market has performed well due to government stimulus, past trends suggest that Chinese trade tends to be a short-term tactical play. This time, too, it is expected to be temporary. Once this tactical trade dries up, there is a strong possibility of foreign institutional investors (FIIs) returning to India," said Vijayakumar.
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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
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