Indian stock market rally to continue if Q4 results align with 15% long-term average, says Geojit’s Vinod Nair | Stock Market News

The U.S. market recently experienced a deep rapid correction, with the S&P 500 falling by 10% and the Nasdaq 100 by 14%. However, India’s stock market remained resilient amid the global sell-off. The Nifty 50 swiftly rebounded from its recent low of 21,964.6, surpassing the 23,000 threshold with ease. By Friday’s close, it had climbed to 23,350, marking a 6% MoM increase.

The upside of the Indian market is triggered by the persistent fall of the DXY, dollar index, indicating weakness of the US economy. The DXY has dropped from a recent peak of 110 to sub-104, driven by economic consolidation in the US. The latest FED policy cut the US GDP growth forecast for CY25 to 1.7% from 2.1% earlier and increased inflation & unemployment estimates.

The decline in the DXY has also been driven by the Fed’s slowdown in quantitative tightening (QT). Recently, the Fed has scaled back its open market operations (OMOs) related to bond purchases, enhancing market liquidity. As QT eases, QT is the reversal of quantitative easing (QE), the demand for dollar from external sources decreased. This is leading to low demand of dollar, thus appreciating non-dollar currencies. This is supporting the European Union (EU) and Emerging Markets (EM). Over the past three months, the S&P Euro and Hang Seng indices have risen by 12% and 20%, respectively, with India now following suit.

Trump’s tariff policies are expected to weigh on the U.S. economy in the short to medium term. The US administration appears willing to endure temporary disruptions in pursuit of long-term benefits, signalling potential economic challenges ahead. Concerns persist that the ongoing trade war with major trading partners—China, the European Union (EU), and neighbouring countries could have a greater negative impact, raising fears of a possible recession by CY26. For example, the implementation of a 25% tariff on Steel and Aluminium has already started to strengthen the metal prices pro-inflation. Tariff on China has been increased to 20%, which also is expected to elevate domestic inflation.

Considering the ongoing disruptions to traditional business operations, the U.S. economy may face significant losses. This has raised concerns that the U.S. stock market could enter a correction phase in the short to medium term. Additionally, the Trump administration’s plan to cut fiscal spending in an effort to curb the deficit may further restrain economic growth, adding market uncertainties.

However, in the short-term, the non-US stock market is taking it as a shot in the arm. This is because their respective governments are more supportive with financial liquidity, an increase in fiscal spending and a cut in interest rates. Like the ECB has cut the bank rate to 2.5% while the FED is held at 4.5%. The Chinese government is becoming more lenient to private corporates against the stringent measures deployed to control the growth of non-public entities earlier. The continued slowdown of the Chinese economy has prompted the Communist Party to adjust its policies, encouraging private sector participation to stimulate spending and economic recovery.

In India, several factors are fuelling the ongoing market rally. FIIs have moderated their selling amid the sustained decline in the DXY, while DIIs remain steadfast in their buying. Additionally, the market had been consolidating for the past six months due to a decline in corporate earnings, bringing valuations down from premium levels to their long-term averages. Furthermore, economic indicators have turned increasingly supportive, signalling a sharp recovery in business activity. Strong monthly IIP, PMI and reduction in inflation & crude data have boosted sentiment. RBI is expected to make the second 25bps cut in April, and more is expected in the future.

A breeze of improvement in earnings is arising, which can be locked-on based on the upcoming Q4FY24 results, to be released in April. In Q3, India’s earnings growth was 10% below the long-term average of 15%. For Q4, earnings growth is likely to be better due to drastic improvement in government spending. But the earnings base of Q4FY24 is on the higher side, which can limit the upside. Market expectations for FY26 remain optimistic, with projections of robust earnings growth. If earnings can align with the long-term average of 15%, the ongoing market rally is likely to persist. In the near term, volatility may arise from the expected implementation of a reciprocal tariff on April 2. However, this is expected to be addressed through a bilateral trade agreement that is currently in its final stages of negotiation.

The author, Vinod Nair is Head of Research at Geojit Financial Services.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making investment decisions.