What lies ahead for the Indian stock markets?

With the US markets technically slipping into bear territory, the million dollar question what does it hold for Indian markets? But first a quick peak at how the markets have panned out till date and let us take the Nifty as a proxy for the markets. In the last one year, the Nifty has touched a high of 18,604.45 and a low of 15,450.90. The current level of the Nifty as of the close of 14ths June is 15,699.05. That translates into an effective fall in the market from the peak levels of -15.62%.

However, just looking at the index point to point movement may not help. One can take solace from the fact that the US S&P 500 has fallen by 20% while the Nifty is down by just 15.62%. But that misses out the currency angle. In the last 5 months, the rupee has weakened from 74/$ to 78/$. That is currency depreciation of around 5.12%. If you add that up, the Nifty and the S&P 500 are almost at par in terms of the fall.
 

What could work against Indian markets?

Global flows have seen nearly $29 billion dollars pulled out by FPIs between October 2021 and June 2022. That is a lot of money and is also evident in the sharp fall in FPI AUM. Since the FPI outflows impact the large caps and the rupee value, the FPI selling is normally a double whammy. Secondly, input inflation continues to be a major risk, which is evident from the WPI inflation spiking higher to 15.88% for the month of May 2022.

The other big risk for the Indian markets is the valuation syndrome. The big trigger for the Indian market was the surge in IPOs. In the last few months, IPOs like Paytm, PB Fintech, Zomato and LIC have virtually made the IPO market quiescent. Lastly, the big risk is still in the macros. With fiscal deficit and current account deficit threatening to spiral out of control, there could be a deep impact on the stock market levels.
 

And, what could work for the Indian markets?

Fortunately, India has a number of favourable factors. Firstly, if FPI outflows are a concern, domestic inflows have been the good news. For example, DIFs brough in Rs2 trillion in 2022 and that is a lot of money. SIPs are picking up in a big way and that is likely to direct a lot disciplined money into equities. Secondly, in terms growth in GDP, India still remains an attractive as even World Bank expects India to grow at well over 7.5% in FY23. The bottom line is that there are concerns, but Indian markets are best poised to bounce back.