Bay Capital Analyst Warns Against Hasty Optimism on Indian Markets Amid Persistent Foreign Outflows

Market Sentiment and Liquidity: Experts Weigh in on Emerging Markets and India

The ongoing war in the Middle East has sparked concerns about the impact on emerging markets and India, with Nikunj Doshi, Managing Partner and CIO-PMS at Bay Capital, cautioning that foreign flows are unlikely to return soon.

According to Doshi, the current market sentiment is driven more by emotions than valuation, making it premature to determine if the bottom is in place. He suggests that investors should start investing gradually over the next few weeks, accelerating the pace if the war ends.

The Reserve Bank of India (RBI) is expected to increase its inflation forecast and marginally cut growth estimates for the economy in its April policy meeting, considering input price inflation across various sectors.

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Comparison of Market Trends

Domestic flows remain robust, and Doshi recommends investing in domestic centric businesses, such as digital first companies, those focusing on domestic consumption, and engineering companies.

The war in the Middle East has caused severe collateral damage to the global economy, and Doshi hopes that a ceasefire is announced soon. In the meantime, investors should be cautious and wait for clarity before making investment decisions.

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The RBI's decision to raise inflation estimates and cut growth forecasts may not be drastic, as it waits for crude oil prices to stabilize. IT stocks are expected to perform differently, with pure play IT services sector heading for lower growth expectations, while ER&D companies may see better growth prospects.

The upcoming Q4 earnings season, which starts this week, may see most companies report inventory gains, but the guidance for Q1FY27 and the full year will be more important. Managements are likely to maintain a cautious tone for Q1FY27 and lower their growth estimates, due to the uncertainty surrounding the war's impact on commodity prices and collateral damage.