Indian Stock Market's Range-Bound Struggle: What's Holding Back the Bulls?
The Indian stock market finds itself trapped in a frustrating range, caught between powerful domestic tailwinds and persistent global headwinds. The Nifty 50, after achieving a 52-week high of 26,246.65 on November 20, has surprisingly slipped below the crucial 26,000 mark, leaving investors perplexed given the market's solid fundamentals.
Despite having every reason to surge—including better corporate earnings, comfortable large-cap valuations, and a robust macroeconomic outlook—the market continues to struggle for sustained upward momentum. This contradiction has become the central puzzle for market participants trying to navigate current conditions.
The Trade Deal Impasse: A Major Hurdle
One of the primary factors restraining the domestic market's progress is the persistent uncertainty surrounding the India-US trade deal. Negotiations have been ongoing since US President Donald Trump announced reciprocal tariffs back in April, with subsequent US tariffs on Indian goods escalating to 50%.
While positive signs indicate both countries might finalize an agreement soon, the timeline remains shrouded in uncertainty. Market experts believe the deal might not materialize until the end of this year, given India's cautious approach driven by its domestically-oriented economy and relatively stable export performance.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, emphasized the potential impact: "If the penal tariff is removed and India manages to secure a tariff below 20%, the Indian stock market could bounce back sharply. This could also lead to significant short covering, pushing the market up by 3–4% in a single day. However, the timing is uncertain."
Liquidity Crunch: The Silent Market Killer
Beyond trade tensions, another critical factor plaguing the domestic market is the severe liquidity crunch affecting retail investors. According to G Chokkalingam, founder and head of research at Equinomics Research Private Limited, this represents the most significant reason behind the market's recent range-bound behavior.
"The only major reason behind the current market weakness is the liquidity crunch among retail investors. Today, retail investors dominate the market directly and indirectly through mutual funds. The problem is that retail liquidity has tightened, which has reduced inflows into equity mutual funds as well as direct stock investments," Chokkalingam explained.
The root cause of this liquidity squeeze? An unprecedented IPO frenzy that has absorbed nearly ₹1.5 lakh crore from the market. This massive capital drain has redirected funds that would typically flow into the secondary market, with many investors transforming into short-term traders chasing quick listing gains.
The aftermath has been telling: numerous IPOs that initially rallied have since corrected, trapping liquidity and disrupting the normal momentum cycle where investors typically sell one stock to buy another. Currently, approximately one-third of small- and mid-cap stocks have declined between 15% to as much as 50–60% from their peaks.
Investment Strategy: Patience Over Panic
So what should retail investors do in this challenging environment? Experts unanimously recommend a wait-and-watch approach, emphasizing that this isn't a market for quick profits but rather one that rewards patient investors who focus on quality stocks with valuation comfort, strong growth outlook, and superior management quality.
Chokkalingam identifies three potential catalysts that could improve market sentiment:
- Time factor: Fresh money may gradually return to the market as new income and savings accumulate over the next five to six months
- IPO slowdown: Reduced IPO activity would naturally trigger the return of retail money to the secondary market
- FII return: The comeback of foreign institutional investors could attract incremental domestic flows
Vijayakumar supports the cautious stance, noting that "many expected FII selling to ease because earnings visibility for FY27 is strong and valuations have turned fair. However, foreign investors have not yet returned as expected."
Despite the challenges, Chokkalingam maintains optimism, predicting the Sensex could still rise around 3% before December. However, he cautions that any rally will likely be uneven, requiring selective investment approaches.
"At least 50–60% of equity allocation should be in Sensex and Nifty 50 stocks. The remaining allocation can go to high-quality small- and mid-cap stocks, but with a one to three year holding period, not expecting significant gains in the next three to six months," Chokkalingam advised.
Wealth Creation Opportunities Remain
For discerning investors, current market conditions still present wealth creation opportunities. Historical patterns show that investors who purchase quality stocks during corrective phases typically generate substantial returns over time.
"History shows that in phases where inferior stocks rally and quality stocks fall, investors who buy strong companies at beaten-down levels create wealth. In the last 30 years, those who consistently invested in high-quality value stocks after corrections have always benefited—provided they picked the right companies," Chokkalingam concluded.
The current market environment, while challenging, ultimately separates patient, strategic investors from speculative traders. For those willing to conduct thorough research and maintain a long-term perspective, quality stocks available at attractive prices after recent corrections could deliver strong returns when held with patience and discipline.
