The Indian stock market benchmark Nifty 50 is down about one per cent for April so far, due to pressing concerns over rising geopolitical tensions, which could potentially shoot up commodity prices and pour cold water on the efforts to curb inflation by global central banks.
The fresh flare-up in tensions between Israel and Iran has made investors nervous and is the biggest reason behind the selloff in the Indian market this week.
“Tension in the Middle East is the major reason for selling in the Indian equity market as this has put doubts regarding the geopolitical uncertainty in the region," said Avinash Gorakshkar, Head of Research at Profitmart Securities.
It has also boosted crude oil prices on concerns over supply disruption as Iran is the third-largest producer of crude oil within OPEC. A rise in crude oil prices means higher inflation, elevated interest rates, low profitability of companies, and pressure on India's fiscal book and economy. Moreover, prolonged elevated crude oil prices can also potentially lead to rating downgrades for India.
Also Read: 5 biggest concerns around Iran-Israel tensions that could impact Indian stock market
The market is expected to remain in the negative territory until clear signs of easing of tensions between Iran and Israel emerge. But this is not the only concern investors are dealing with. They stare at a plethora of headwinds.
The hopes of a significant rate cut this year already seem dashed. Recent inflation data in the US indicated the Fed may not feel confident in reducing rates anytime soon.
Moreover, the recent hotter-than-expected US retail sales numbers indicate that the US expenditure is still strong and it may fuel inflation.
Also Read: RBI repo rate cuts now ‘off the table’ in FY25, says Morgan Stanley
The road ahead for the market appears hazy. However, experts say it is the best time to bet on quality Indian stocks.
Most analysts are of the view that the Indian stock market is poised for healthy growth in the medium to long term because of a strong economic growth outlook, expectations of political stability after the General Elections 2024 and the strong influx of domestic retail investors.
Also Read: India's goods trade deficit narrows to 11-month low of $15.6 bn in March
Impressive GDP growth, healthy direct tax collections, easing inflation and the expectations of a normal monsoon indicate the Indian market may maintain its momentum.
Also Read: Retail inflation and factory output deliver twin thrust to Indian economy
As Nikunj Saraf, Vice President of Choice Wealth pointed out, "Indian economy stands in stark contrast to the global scenario, where inflation continues to confound policymakers and stakeholders. Compounded by escalating global tensions, exemplified by the ongoing conflict between Israel and the Iranian regime, the situation presents a double challenge. However, when examining the macroeconomic landscape of India, we find ourselves on a promising trajectory".
Also Read: India can maintain 8-9% GDP growth: CII president R Dinesh
"We see minimal potential disruptions to Indian markets. Rate cuts may commence in the last quarter of this calendar year, injecting further liquidity into the markets. While acknowledging the possibility of short-term turbulence stemming from valuation dilemmas or global developments, I maintain confidence in India's long-term growth narrative remaining intact," said Saraf.
Also Read: India’s economy: Now a force to reckon with globally?
Prashanth Tapse, Senior VP and Research Analyst at Mehta Equities emphasised that India remains an attractive place to invest, despite ongoing geopolitical tensions and fading rate cut expectations.
"India's stance of neutrality in such tensions has indirectly led to increased investments to safer economics. The country's long-term economic growth is strong, outperforming major economies. While the short-term market outlook is uncertain due to high valuations, long-term prospects are positive thanks to strong micro and macro fundamentals," said Tapse.
He observed that over the past year, global economic signals have been mixed, leading to market volatility. However, India and the US have remained stable while China and Europe showing weakness. This attracts global investors seeking better returns to invest in India.
Moreover, the upcoming General Elections in 2024 could be a significant market mover.
"Signals suggest the current BJP-led NDA government will continue, fuelling economic growth and stable interest rates, which could increase global investment in India. Considering these factors, one should continue to stay invested in Indian stocks, using any market dips as opportunities to accumulate for the long term," said Tapse.
"Despite global uncertainty, India's economy is poised for continuous growth in 2024. Projections from leading financial institutions such as IMF, OECD and World Bank indicate robust growth with India expected to maintain the status of the world's fastest major economy driven by strong domestic demand and rising foreign investments," underscored Arvinder Singh Nanda, senior vice-president at Master Capital Services.
Shrey Jain, Founder & CEO of SAS Online is of the view that a robust policy framework backed by a stable government should ensure that the structural growth in the Indian economy remains intact. This means corporate earnings will continue to grow.
Jain believes domestic-facing companies in FMCG, auto, real estate, infrastructure and defence should continue to do well. Moreover, the 'China plus one' doctrine should support manufacturing in India and support Indian exports. Export-driven businesses in the chemicals and pharmaceutical sectors should see traction. This should attract incremental foreign capital and ensure buoyant sentiment in equity markets.
Jain said select large-cap stocks can be accumulated by investors. However, one should avoid companies with leveraged balance sheets and turn-around stories.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said long-term investors can slowly accumulate high-quality largecaps on corrections.
"Further corrections will make valuations of largecaps fair. Largecaps in banking, IT, autos, capital goods, oil & gas and cement are ideal for long-term investment," said Vijayakumar.
Read all market-related news here
Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.