 |
|
The Indian stock market experienced a significant upswing, with the Nifty 50 index reaching its highest closing point in seven months on Thursday. This surge occurred amidst a backdrop of receding geopolitical concerns, particularly related to tensions involving India and Pakistan, contributing to a more optimistic market sentiment. The Nifty 50 index surpassed the crucial 25,000 mark, a level that often acts as a psychological barrier for investors. This achievement reflects a renewed confidence in the Indian economy and its resilience in the face of global uncertainties. The rally coincided with the weekly derivatives expiry, leading to a substantial increase in trading volume on the National Stock Exchange (NSE). The turnover reached ₹1.28 trillion, marking the highest volume since March 27, when it touched ₹1.5 trillion. This surge in trading activity indicates increased participation from both retail and institutional investors, driven by the positive market momentum and the expiration of derivative contracts. The expiry of these contracts often leads to increased volatility and trading as investors adjust their positions. Adding to the positive sentiment, initial reports suggested that the United States and India were making progress in trade negotiations. U.S. President Donald Trump indicated that India had offered a “zero-tariff” trade deal for American goods, which initially boosted investor confidence. However, this claim was subsequently refuted by the Indian government, with External Affairs Minister S. Jaishankar clarifying that trade talks were ongoing and remained complex. This clarification tempered the initial enthusiasm, highlighting the intricacies and challenges involved in international trade negotiations. The potential realignment of portfolios by mutual funds and exchange-traded funds (ETFs) tracking the MSCI India index further fueled market activity. The upcoming index rejig on May 30 prompted these institutions to begin adjusting their holdings in anticipation of the changes. According to Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research, India could see passive inflows of approximately $200 million from foreign institutional investors (FIIs) due to these adjustments. This influx of foreign capital is expected to further support the Indian stock market. Pagaria also noted that India maintains its position as the second-largest country weight in the MSCI Emerging Market (EM) index, holding a weight close to 19.5%. The latest changes to the index will increase the stock count from 157 to 159, indicating a broader representation of Indian companies in the global index.
The Nifty 50 index closed the day with a 1.6% gain, settling at 25,062.10 points, the highest since October 14, 2024, when it reached 25,127.95. Similarly, the S&P BSE Sensex climbed 1.5% to close at 82,530.74 points, the highest since October 3, when it touched 82,497.1. The performance of the Nifty and Sensex demonstrates the overall strength of the Indian stock market and the positive impact of the factors mentioned earlier. Large-cap stocks outperformed their mid-cap and small-cap counterparts on Thursday, indicating a preference for established and stable companies during the rally. The Nifty Midcap 100 index edged up just 0.7%, while the Nifty Smallcap 250 index managed a modest 0.8% gain. This divergence in performance suggests that investors were more inclined to invest in larger, more liquid stocks, possibly due to their lower risk profile and perceived stability. Sunil Singhania, founder of Abakkus Asset Manager, emphasized the importance of focusing on fundamental economic factors, regardless of geopolitical developments. He highlighted India's strong economic growth, a falling interest rate regime, lower oil prices, and robust earnings as key drivers for investment. Singhania's perspective underscores the long-term potential of the Indian economy and its attractiveness as an investment destination. Sandeep Bagla, chief executive of TRUST Mutual Fund, acknowledged that while the worst of geopolitical tensions may have subsided, volatility could persist in the near future. He highlighted India as a distinct and attractive opportunity compared to other emerging markets, but cautioned that valuations remain high. Despite the high valuations, Bagla expressed optimism about the long-term prospects of sectors such as defense, premium consumption, and financials. His comments reflect a balanced view of the Indian market, recognizing both its potential and the associated risks.
On Thursday, all sectors ended in the green, with Nifty Auto and Nifty Realty leading the gains, each rising by 2%. These sectors benefited from the overall positive market sentiment and specific factors driving their growth, such as increased consumer demand for automobiles and rising property values. Index heavyweights such as Reliance Industries Ltd, Infosys Ltd, and ICICI Bank Ltd were the biggest contributors to the rise in the Nifty 50 index. These companies represent a significant portion of the index and their performance has a substantial impact on the overall market. In contrast to the Indian market, Asian markets experienced a loss of momentum on Thursday. Japan’s Nikkei, China’s CSI 300, Hong Kong’s Hang Seng, and South Korea’s Kospi all declined by approximately 1%. This divergence highlights the relative strength of the Indian market compared to its regional peers. The easing of tensions between India and Pakistan contributed to a relief rally in the Indian equity market. Concerns about the escalating conflict had led to increased hedging activity, but the ceasefire between the two nations eased these concerns and boosted investor confidence. The positive shift was further supported by a global rebound driven by easing tensions in US-China trade talks. This global rebound had a positive spillover effect on the Indian market, as investors became more optimistic about the overall global economic outlook. Jitendra Sriram, senior fund manager at Baroda BNP Paribas Mutual Fund, emphasized that the sustenance of the current market momentum would depend on market earnings. He also noted that any easing of global tariff wars could mitigate fears of a slowdown in global growth. Sriram added that the contours of the U.S. pharmaceutical sector proposals were relatively watered down, which fueled a pick-up in global plays like metals, technology, and pharmaceuticals, which have meaningful weights in Indian indices.
Corporate earnings have been a key factor weighing on the markets, but recent data suggests a positive trend. Bernstein Research noted that the single largest concern among investors has been on the earnings risks front. However, the brokerage does not expect more corporate rating downgrades for now. Overall, there is a slight slowdown with NSE100 firms growing at 10%, compared with 11% in the previous quarter. Despite this slight slowdown, the worst-case earnings projections that resulted from continuous downgrades since September have not materialized. About 51% of companies exceeded market estimates by over 4% in the final quarter of 2024-25, the highest since June 2023, according to Bernstein. The percentage of companies missing estimates was at its lowest since September 2021. This data indicates that corporate earnings are improving and that the Indian economy is performing better than expected. The combination of easing geopolitical tensions, potential foreign capital inflows, positive corporate earnings, and a focus on fundamental economic factors has contributed to the recent surge in the Indian stock market. However, investors should remain cautious and monitor global developments, as volatility could still persist in the near future. India's long-term prospects remain promising, particularly in sectors such as defense, premium consumption, and financials. The current market environment presents both opportunities and risks, and investors should carefully consider their investment strategies and risk tolerance before making any decisions. The Indian stock market's resilience and positive performance in the face of global uncertainties demonstrate its attractiveness as an investment destination and its potential for continued growth in the years to come.
In conclusion, the Indian stock market's recent surge, highlighted by the Nifty 50's seven-month high, reflects a confluence of factors including easing geopolitical tensions, potential foreign investment inflows spurred by MSCI index adjustments, and improving corporate earnings. While the initial optimism was tempered by clarifications on trade negotiations with the US, the overall sentiment remains positive, driven by India's strong economic fundamentals. The market's performance demonstrates its resilience and attractiveness compared to other emerging markets, though investors are advised to remain vigilant due to potential near-term volatility and high valuations. The leadership of large-cap stocks and the positive performance across sectors like auto and realty underscore the broad-based nature of the rally. Experts emphasize the importance of focusing on India's economic growth, interest rate environment, and earnings performance, rather than being solely swayed by global events. While Asian markets showed weakness, India's relative strength stands out, supported by a ceasefire with Pakistan and optimism surrounding US-China trade talks. The sustainability of this momentum will depend on continued strong earnings, but the recent data indicating a higher percentage of companies exceeding market estimates provides a positive outlook. The Indian stock market presents a dynamic landscape with both opportunities and challenges, necessitating a balanced and informed approach from investors seeking long-term growth.
Source: Nifty logs highest close in 7 months as conflict fears recede. But volatility lingers.