Indian equity markets experienced a significant recovery on Thursday, with benchmark indices climbing over 1%. The 30-share BSE Sensex surged 943.82 points, or 1.27%, to close at 75,552.80, while the NSE Nifty50 advanced 319.25 points, or 1.36%, reaching 23,731.90. This sharp rebound was largely attributed to bargain hunting and value buying in specific sectors following recent market corrections.
Experts Urge Caution Amid Volatility
Despite the strong rally, market strategists cautioned investors about continued near-term volatility. Kranthi Bathini, Equity Strategist at WealthMills Securities, noted a resurgence of buying interest in particular areas after recent declines. However, he advised investors to remain vigilant at elevated levels, suggesting a 'buy-on-dips' and 'sell-on-rallies' approach. Market veteran Arun Kejriwal echoed this sentiment, recommending a 'wait-and-watch' mode for investors over the coming sessions.
Macroeconomic Headwinds Persist
Underlying macroeconomic concerns continue to challenge the market. The Indian rupee touched a new record low against the US dollar, weakening to 95.86 per dollar in early trade on Thursday. This depreciation is fueled by rising crude oil prices and escalating geopolitical tensions in West Asia.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, highlighted sustained rupee depreciation as a critical economic concern. He warned that if crude prices remain high for an extended period, the rupee could potentially breach the 100 mark. Vijayakumar also pointed to continuous selling by Foreign Portfolio Investors (FPIs) in the Indian market, with funds shifting towards stronger performing markets like the US, Japan, South Korea, and Taiwan. This outflow further exacerbates pressure on the rupee.
Impact of Crude Oil and Global Flows
Rohit Sarin, Co-Founder of Client Associates, explained that recent market fluctuations indicate investors are increasingly factoring in future macro risks. He cited the Prime Minister's observation that unnormalized crude oil prices could lead to inflationary pressures, a significant concern for India, a major oil importer. Higher crude prices can widen the current account deficit, weaken the rupee, and keep interest rates elevated.
Vijayakumar suggested that market conditions might only improve if crude oil prices cool down or if global fund flows into AI-driven markets moderate, though he noted uncertainty about when these changes might occur.
Domestic Inflows Provide Stability
While FIIs remain cautious due to geopolitical uncertainties and better global opportunities, domestic inflows are playing a crucial role in stabilizing the Indian market. Sarin pointed out that domestic investors, through Systematic Investment Plans (SIPs) and direct equity participation, are increasingly becoming a marginal source of capital. This shift signifies India's growing independence from foreign flows to maintain market depth, though it remains partially exposed to global sentiment.
Long-Term Outlook Remains Compelling
Despite the potential for continued near-term volatility whenever valuations become expensive or macro pressures intensify, Sarin maintains a positive long-term outlook for Indian equities. He believes India's growth story is strongly supported by infrastructure spending, formalization of the economy, digital adoption, and rising domestic savings, making the long-term case for Indian equities compelling.