Expert Analysis: Indian Stock Market Navigates Volatility Amid Global Headwinds
Vinit Bolinjkar, Head of Research at Ventura Securities, has provided a detailed assessment of the current state of the Indian stock market, highlighting significant volatility driven by external pressures while maintaining a cautiously optimistic outlook on corporate earnings growth.
Multiple Factors Contributing to Market Volatility
Foreign Institutional Investor (FII) outflows have reached concerning levels, with holdings dropping to a 15-year low near 17%. This follows substantial withdrawals of approximately ₹2 lakh crore from key sectors including financials and information technology, with an additional ₹12,000 crore exiting in January alone amid global risk-off sentiment.
The Nifty index, despite reaching record highs in early 2026, has entered a consolidation phase lacking sustained rally momentum. This reflects broader market uncertainty and shifting investor sentiment.
US-India Trade Tensions Escalate
Trade relations between India and the United States have deteriorated significantly, with the Trump administration imposing substantial 50% tariffs on Indian steel, textiles, and electronics. This action followed diplomatic tensions, including references to Prime Minister Modi's unreturned call. While India continues negotiations, the uncertainty weighs heavily on export-oriented sectors.
Additional Market Pressures
- Reliance Industries faces pressure due to capital expenditure delays
- HDFC Bank contends with net interest margin headwinds
- Muted earnings growth projections of 8-16% versus earlier 20% expectations
- Middle East geopolitical risks creating uncertainty
- Concerns about potential artificial intelligence sector bubbles
- Elevated input costs with oil prices exceeding $80 per barrel
- Rich valuations with Nifty trading near 24 times price-to-earnings ratio
Cautiously Optimistic Earnings Outlook
Despite these challenges, Bolinjkar expresses measured optimism regarding corporate earnings. The Nifty earnings per share (EPS) growth is projected at 8-16% year-over-year, representing the strongest performance in eight quarters. This improvement follows five consecutive quarters of earnings downgrades, with recent upgrades driving the positive trend.
Several factors support this outlook:
- The rupee trading at approximately 86 per dollar benefits information technology and pharmaceutical sector margins
- Festive season demand continues to support consumption sectors
- Infrastructure spending provides momentum for industrial companies
However, global volatility continues to cap upside potential, with risks including potential US economic slowdown and persistent raw material inflation.
Banking Sector Shows Resilience
The banking sector demonstrates promising fundamentals with projected credit growth of 10-11%, segmented as:
- Retail credit growth at 15%
- Micro, small and medium enterprise (MSME) credit growth at 12%
- Corporate credit growth at 8%
Net interest margins may stabilize through potential cash reserve ratio (CRR) cuts, while asset quality appears strong with gross non-performing assets expected to peak at 2.3-2.6%—the lowest levels in decades.
Public sector banks outperform on loan momentum, with State Bank of India showing 13% growth and benefiting from government recapitalization. Private banks continue to excel in return on assets and return on equity metrics.
Promising Sectors for Investment
Several sectors align with India's structural growth themes, including 8% GDP expansion, capital expenditure cycles, and Production Linked Incentive (PLI) schemes:
- Banking, Financial Services and Insurance (BFSI): Positioned to benefit from credit expansion and non-banking financial company revival
- Consumption and Discretionary Spending: Supported by rural recovery following favorable monsoon conditions and premiumization trends
- Defense and Manufacturing: Attractive due to order execution momentum and China+1 diversification strategies
- Green Energy: Promising prospects with India targeting 450 gigawatts of renewable capacity by 2030, including fivefold solar expansion
- Technology, IT and Telecom: Benefiting from artificial intelligence adoption, 5G network rollout, and export recovery
This comprehensive analysis underscores the complex interplay between domestic strengths and global challenges facing Indian equity markets. While volatility persists from multiple directions, underlying corporate earnings improvements and sector-specific opportunities provide reasons for measured optimism among investors.
