The Indian stock market has seen bouts of volatility in recent months, and while domestic investors have provided resilience, a broad-based rally remains elusive. According to Nilesh Shah, Managing Director of Kotak Mahindra Asset Management Company, the market’s ability to sustain a robust upward trajectory depends on two key factors—Foreign Portfolio Investor (FPI) inflows and stronger economic growth.
The Role of FPI Flows
Foreign investors play a crucial role in shaping India’s equity markets. When FPIs pump in money, liquidity increases, boosting stock prices and overall market sentiment. However, recent trends indicate that FPIs have been cautious, pulling back investments due to global uncertainties, high US interest rates, and geopolitical tensions. Without consistent FPI support, the market may struggle to witness a broad-based rally, Shah notes.
Economic Growth as a Key Catalyst
Apart from liquidity flows, sustained economic growth is essential for a bullish market. While India’s economy has been expanding at a healthy pace, Shah believes that structural reforms, improved corporate earnings, and increased capital expenditure are necessary to accelerate growth. Without these factors, domestic markets may remain range-bound, with only selective sectors performing well.
What Could Change the Market Outlook?
Shah highlights a few triggers that could reignite a market-wide surge:
- Lower Global Interest Rates – If the US Federal Reserve begins cutting rates, FPI inflows into emerging markets like India could rise.
- Government Reforms – Policy measures supporting manufacturing, infrastructure, and financial sectors can boost investor confidence.
- Stronger Corporate Earnings – Sustained earnings growth across industries will provide fundamental support for higher stock valuations.
- Political Stability – With elections approaching, a stable government with pro-growth policies will be crucial for market sentiment.
Sector-Specific Growth Over Broad Market Rally?
Shah believes that in the absence of strong external inflows, the market may see sector-specific rallies rather than an overall bull run. Sectors like banking, capital goods, and IT could outperform, while others may struggle.
While Indian equity markets remain resilient, a broad-based rally requires a combination of FPI inflows and stronger economic growth. Until these factors align, investors may need to focus on selective opportunities rather than expecting a market-wide surge.
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