Indian Stock Market Volatility May Persist Amid Elusive Rally

Indian Stock Market Sees 1% Gain Amid Global Cues

The Indian stock market benchmarks, the Sensex and the Nifty 50, jumped by almost 1% each in morning trade on Monday, 27 April. This gain comes after the market suffered losses for the last three consecutive sessions. The rise in the benchmarks can be largely attributed to short covering amid positive global cues, despite elevated crude oil prices and the rupee's weakness remaining key negatives for the market.

The positive global markets and some short covering appear to be behind the rise in markets. However, it would be essential to see where the market closes, as the possibility of the market surrendering most of the gains is high. Brent Crude oil prices rose more than 1% to trade above the $106 per barrel, while the Indian rupee slipped 11 paise to 94.27 against the US dollar in early trade.

Market Outlook: A Sustained Rally May Remain Elusive

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The domestic market is expected to remain volatile in the near term due to persisting uncertainties over the progress in the US-Iran peace talks. The diplomatic efforts from the US have failed to result in a final resolution to the West Asian conflict. According to media reports, US President Donald Trump cancelled a planned trip by top envoys to resume negotiations with Iran in Islamabad, while Tehran continues its stance of not engaging in talks under threats or blockade.

The resolution to the West Asian conflict will be a major relief for markets globally as it will ease concerns over inflationary pressure by driving crude oil prices lower. However, the impact of the war and elevated crude oil prices may take a long time to fade away completely.

The impact of higher crude oil prices will likely linger for at least the next 1-2 quarters. India imports about 85-90% of its crude oil requirements, so elevated prices feed into inflation, CAD widening, and RBI policy caution. For a sustained rally beyond 25,000, crude oil prices need to cool off to around $70–75 per barrel.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

However, crude oil prices may take a few months to come to the levels around $70–75 per barrel because of the damage of oil infrastructure facilities in the region and high inventory draws. Elevated crude oil prices can drag the profitability of Indian corporates because of increased input costs. Plus, it can drive inflation higher, triggering monetary policy tightening - again negative for corporate profitability and stock market sentiment.

Q4 earnings of heavyweight sectors like banking and IT have been mixed. Q1FY27 results could be weak because of the impact of geopolitical factors. For a sector like IT, the disruption caused by AI remains a key challenge. Experts believe while the market may not touch the low of early-April, it can stay range-bound in the short term.

"Elevated crude prices could weigh on sentiment, leading to market weakness. While the market may not breach its previous lows, the Nifty 50 could witness a decline towards 23,000," said Shrikant Chouhan, the head of equity research at Kotak Securities.