Market volatility will be short-lived
Stock market turbulence is passe as faith in India’s economic fundamentals remains strong, unshakable and all-pervasive
Despite recent upheavals, India’s stock market is expected to emerge unscathed, backed as it is by strong economic fundamentals, policy reforms, and investment opportunities. While short-term volatility persists, the long-term outlook remains promising
Just when the turbulence of the stock markets has shaken investor confidence in India and elsewhere, a clutch of international agencies has reiterated confidence in the India story. Their optimism is rooted in the strong fundamentals of the Indian economy and its eminent investability.
Recently, in an interview to a prominent English daily, Jim Walker, the economist who foresaw the 2008 financial crash of the US, backed India over China for investments. He said he believed India’s strong policies, deregulation efforts, and business-friendly reforms make it the best place to invest right now.
While markets face a downturn, Walker assures that India’s economic growth will justify stock valuations and that long-term investors should increase their stakes in India, this being a “rare opportunity for wealth creation.”
Moody’s Ratings, in its latest Banking System Outlook – India report projects India’s real GDP growth to soar past 6.5 per cent in the fiscal ending March 2026. Driving this momentum is a potent mix of aggressive Government capital expenditure, strategic tax cuts, and interest rate reductions.
S&P Global Ratings has also forecast India’s GDP to expand between 6.5 per cent and 7 per cent annually through 2027, driven by infrastructure investments and private consumption. Similarly, Morgan Stanley has revised its GDP growth forecast for 2024-25 upward to 6.8 per cent, citing continued traction in industrial and capital expenditure activities.
Market mayhem
In recent weeks, the stock market has been engulfed in a tempest of volatility, shaking investor confidence both domestically and globally. The turbulence stems from a confluence of factors, including financial discrepancies in major banking institutions, global economic uncertainties, and domestic policy challenges.
A significant catalyst for the recent market mayhem has been the unsettling developments surrounding IndusInd Bank, one of India’s prominent private sector banks. The bank disclosed a substantial accounting discrepancy in its currency derivatives booking, leading to an estimated earnings impact of $175 million—equivalent to an entire quarter’s profits. This revelation triggered a catastrophic 27 per cent plunge in the bank’s share price, marking a 58 per cent decline from its 52-week high.
Adding to the market’s woes are domestic policy challenges, particularly concerning the tax regime. Businesses have voiced frustration over complex tax structures and bureaucratic hurdles, often referred to as ‘tax terrorism.’ Companies like Volkswagen have faced substantial tax demands, complicating further investments despite India’s promising potential. While the Goods and Services Tax (GST) introduced in 2017 aimed to simplify taxation, issues persist, prompting Finance Minister Nirmala Sitharaman to announce forthcoming reduction and rationalisation of GST rates.
US effect
The domestic banking turmoil has been exacerbated by global economic uncertainties. Concerns about a potential US economic slowdown have led traders to anticipate further interest rate cuts by the Federal Reserve, with expectations of up to 80 basis points of reductions this year. This sentiment has weakened the US dollar, with the dollar index hovering near a five-month low at 103.5. Consequently, the Indian rupee is expected to remain low, reflecting the defensive stance adopted by traders amid these global cues.
The ripple effects of these global concerns have been felt across Asian markets. Japan’s Nikkei 225, for instance, experienced a 2 per cent decline, underscoring the pervasive apprehension among investors. Indian information technology companies, which derive a significant portion of their revenue from the US, have been particularly affected, with major players like Infosys and Wipro witnessing average declines of 1.5 per cent.
Optimism for India
Despite the current turbulence, some analysts maintain a cautiously optimistic outlook on India’s economic trajectory. UBS, for instance, projects that the Nifty 50 index may reach 25,200 by March 2025, based on March 2026 earnings estimates and a 12-month forward price-to-earnings multiple of 20.6 times.
Manish Chokhani, Director of ENAM Holdings, highlights the positive trajectory of India’s economy, which is reflected in the stock market’s performance. He notes that the country’s major balance sheets — including those of the corporate sector, banking sector, and Government—are all moving in the right direction, suggesting no significant setbacks on the horizon.
Ridham Desai, Managing Director of Morgan Stanley India, maintains a positive outlook on India’s economic prospects. He emphasises that Prime Minister Narendra Modi’s commitment to structural reforms will drive India’s progress, ensuring macroeconomic stability and supply-side improvements. Desai also observes that consistent domestic investment has been a key driver of the market, and he anticipates that as corporate issuances increase, opportunities for foreign investment will re-emerge.
Rajesh Bhosale, an analyst at Angel One, highlights that attractive buying opportunities have emerged following recent declines, suggesting potential for a short-term recovery. However, he also advises caution due to ongoing global trade uncertainties. The recent upheavals in India’s stock market serve as a stark reminder of the intricate interplay between domestic challenges and global economic dynamics. While revelations like the accounting discrepancies at IndusInd Bank have jolted investor confidence, the underlying strength of India’s economy, bolstered by infrastructure spending and consumer demand, offers a counterbalance.