The Indian stock market is currently facing short-term hostility as uncertainty looms over investors, according to Vinod Nair, Head of Research at Geojit Financial Services. Several factors contribute to this cautious outlook, including global cues, US-China trade dynamics, and the US Federal Reserve's policy path.
Nair noted that the market tone reflects a combination of profit-booking and macro caution. Indian equities closed decisively lower after a volatile session, as investors booked profits amid mixed corporate earnings and cautious global sentiment in the backdrop of a strong US dollar. Most sectors closed in the red, pressured by renewed Foreign Institutional Investor (FII) selling, which turned cautious after recent statements from the US Federal Reserve and as US-China trade developments did not meet expectations.
Several factors are contributing to the prevailing uncertainty. The US Federal Reserve's indication that a December rate cut may not be assured has prompted renewed FII selling. Concerns over US-China trade relations are also weighing on market sentiment. The slowdown in bilateral trade negotiations has added to uncertainty, particularly affecting sectors such as textiles, capital goods, auto ancillaries, seafood, gems and agriculture. These industries face relatively higher tariffs compared to other emerging markets.
However, there are also some positive factors that could support the market in the near term. PSU banks outperformed due to expectations of increased FDI limits and better Q2 results. Expectations of better corporate earnings and easing global trade tensions could also support sentiment ahead. "Buy on dips" is likely to remain a near-term trading strategy, as underlying optimism remains solid on a quarter-on-quarter basis.
Nair expects the Nifty 50 benchmark index to trade in a narrow range, reflecting a mixed bias. Export-oriented sectors like IT and pharma are likely to remain cautious in the near term, although attractive valuations may appeal to long-term investors in the technology space. Overall, the market is expected to remain stock- and sector-selective.
Despite the current uncertainty, there are signs that the Indian stock market could perform better in the medium term. Improving market sentiment may lead to mid-cap and small-cap stocks shining. India's broad market earnings growth is likely to increase, which would benefit midcaps. FII outflows could ease and turn positive, as the premium valuation of India has reduced and earnings are expected to rebound.
Investors should closely monitor global yields, FII flows, and upcoming Q2 earnings cues to gauge market direction.
