Where to invest as markets look past trade, India-Pak war, Q4 earnings?

Stock market strategy:The markets are likely to consolidate in the near-term after a relief rally earlier this week that saw the Sensex and the Nifty 50 record their best day in four years, analysts said.

Most positives, they believe, are in the price even as overhang related to foreign investors’ inflows and uneasy calm at the India, Pakistan border persists.

As an investment strategy, they suggest investors look at domestic economy-facing sectors, which are relatively insulated from global developments.

While a major fall in the market from these levels is unlikely with March lows acting as a near-term bottom, Ambareesh Baliga, an independent market expert anticipates the up move to be gradual amid intermittent bouts of profit taking. He expects the 24,000-25,000 zone on the Nifty to be a strong base for the index.

“The 900-point rally in Nifty on Monday was unexpected and markets will likely consolidate around current levels,” Baliga said.

Markets’ roller coaster months

Indian stock markets have been volatile over the past few months as investors dealt with US President Donald Trump’s trade and reciprocal tariffs, corporate results of India Inc, and a war with Pakistan.

From a high of 82,133 touched on December 13, 2024 (on closing basis), the BSE Sensex index hit a low of 72,990 on March 4, 2025 (closing basis), dropping over 9,100 points as markets began discounting Trump’s tariff rhetoric.

A relief rally, however, ensued in the domestic equity markets thereafter as Trump’s reciprocal tariffs on India were lower than some of the other emerging markets, especially China.

Simultaneously, buying by foreign portfolio investors (FPIs) for the third consecutive month, and de-escalation between India-Pakistan over the weekend, lifted the Sensex back above 82,000 level on May 12.

The sharp increase in FPI inflows in recent weeks, analysts at Kotak Institutional Equities (KIE) said, reflected positive sentiment for India among active and passive investors, driven by a 2.5-per cent depreciation in the US Dollar index over the past one month, and high conviction among investors that India could be a relatively ‘better’ market, considering global growth challenges.

In this backdrop, how a tariff-truce between the US and China will affect foreign inflows will hold the key for the domestic equity markets’ up move in the coming days, analysts said.

“The outlook for the Indian stock market remains excellent from a medium-to-long term perspective. However, in the near-term, investors need to closely watch the contours of the trade deal between the US and China,” cautioned G Chokkalingam, founder and head of research at Equinomics Research.

A trade deal between two of the world’s biggest economies is good for global trade, but Chokkalimgam believes it may be a tad negative for India, which was emerging as an alternative to China.

“This, and the sustenance of ceasefire understanding between India and Pakistan at the border, remain two major overhangs on the Indian stock markets,” Chokkalingam added.

Where to invest in stock market?

Against this backdrop, analysts suggest investors invest in domestic economy-facing sectors as steady economic growth, expectations of a ‘normal’ monsoon and robust food grain output, easing inflation, and signing of various trade agreements bode well for India’s economic outlook.

“Investors may look at high-beta plays which offer valuation comfort. I prefer banking stocks, especially public sector banks,” said Chokkalingam.

Ambareesh Baliga, on the other hand, prefers banks, fast moving consumer goods (FMCG), white goods, automobile and auto ancillary, specialty chemicals, cement, and metals.

He is cautious, but not negative, on information technology (IT) stocks, while seeing limited upside in defence stocks.

That said, as most sectors are trading at lofty valuations, there could be a possible derating in multiples across sectors in the case of earnings disappointments, cautioned KIE.

Disclaimer: Moneywealth research provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

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