Geopolitical Missiles Hit Indian Markets

Heightened geopolitical tensions led to heavy selling across sectors, but markets ended the fortnight with a surprise rebound. Will the momentum continue?

Indian benchmark indices experienced a roller-coaster ride over the past fortnight, influenced primarily by global developments. While the indices initially continued their upward momentum, inching closer to record highs, rising geopolitical tensions, particularly between Iran and Israel unsettled investor sentiment, leading to short-lived corrections. The broader markets bore the brunt of this volatility, with the BSE Midcap index falling 1.34 per cent and the BSE Small-Cap index tumbling around 2 per cent. In contrast, frontline indices showed greater resilience.

Interestingly, the Nifty VIX, a key measure of market volatility, declined nearly 7 per cent during the fortnight. Despite global concerns, this suggested underlying investor confidence in India’s strong economic fundamentals and robust domestic participation. The last trading session of the fortnight brought cheer to the markets, with BSE Sensex and Nifty 50 gaining nearly 1.25 per cent each. This sharp recovery helped the benchmarks close the period in green territory. The bounce was largely on expected lines, as the previous three sessions had seen consolidation and investors were looking for attractive entry points amid reasonable valuations.

While broader indices also recovered, they could not reclaim their earlier highs. On the sectoral front, the Information Technology sector emerged as the standout performer. Renewed hopes around U.S.-China trade negotiations lifted sentiment, as any resolution between the two economic giants could ease global trade concerns. Supportive factors such as improved U.S. jobs data, a stable dollar, and continued foreign fund inflows further aided the uptrend in IT stocks. Among all sectors, metals were hit hardest, grappling with headwinds that made it the worst performer of the fortnight.

A mix of profit-booking and rising input costs, particularly those linked to dollar-denominated imports, weighed heavily on metal counters. Real estate and fast-moving consumer goods (FMCG) sectors also remained under pressure, affected by concerns over demand moderation. Foreign institutional investors (FIIs) remained net buyers through the fortnight, Domestic institutional investors (DIIs) continued their strong support, helping cushion the impact of global uncertainties.

Meanwhile, the U.S. Federal Reserve and the Bank of Japan chose to maintain status quo on interest rates, though a rate cut might have given markets the boost needed to scale new peaks. Going forward, market direction will be shaped by global geopolitical developments, central bank commentary, inflation trends, and domestic earnings performance. Investors are advised to stay selective and maintain a balanced approach amid ongoing uncertainties. Stay tuned for further updates!