The Indian stock market has disappointed investors lately. Despite hitting a record high of 26,373.20 on 5 January this year, the benchmark Nifty 50 has delivered a meagre return of just 2% over the last two years. On a shorter timeframe of one year, Nifty has fallen 4%.
Now, when geopolitical risks have eased, oil prices have crashed below $75 per barrel, and economic growth is projected to stay above 6.5%, is the Indian stock market could a bull run be next for the Indian stock market?
The current setup
The current macroeconomic setup in the Indian economy looks strong as crude oil prices have fallen more than 30%, easing inflationary pressure and enhancing economic growth outlook.
Oil price benchmark Brent Crude is currently trading below the $75 per barrel level, which is a huge relief for the Indian economy since the country meets nearly 85-90% of its oil requirements through imports.
Media reports quoted Nagesh Kumar, an external member of the RBI’s Monetary Policy Committee (MPC), saying that the Indian economy may grow by over 7% in FY27, exceeding the RBI’s current growth forecast, if Middle East tensions ease further and crude oil prices stay near $70 a barrel.
Kumar told Bloomberg in an interview that the easing of geopolitical tensions is poised to improve the outlook for India’s economy.
“The macro environment has certainly improved. Very few expected crude oil prices to fall below $75 per barrel. In fact, the consensus view was that Brent crude would remain around the $70 level. At the current pace, prices could even dip below $70, which has come as a positive surprise for the market,” VK Vijayakumar, Chief Investment Strategist, Geojit Investments, observed.
Historically, on several occasions, the Nifty 50 has seen healthy returns after underperforming for two years.
Edelweiss Mutual Fund, in a recent report, highlighted that when the Nifty 50 stagnated for nearly two years, the next one- to three-year period has been followed by healthy returns on most occasions.
While history does not always repeat itself, it is a fact that the Indian market has become much stronger and more resilient over the years.
What about the monsoon risk?
The prospects of a poor monsoon remain key concerns.
Reports suggest that the cumulative rainfall deficit this year has now widened to 42% below the long-period average.
As long as monsoon trends remain unclear, investors should remain cautious. The progress of the monsoon remains an important variable that could influence market sentiment and economic growth in the coming months.
However, some experts believe it is too early to panic about it.
“A monsoon deficit becomes a concern only if it reaches 25-30%. If the shortfall is limited to around 10%, as forecast by the India Meteorological Department (IMD), it is unlikely to pose any major problem for the economy or the markets,” G Chokkalingam, the founder and head of research at Equinomics Research.
“As of now, there is no reason to panic. June rainfall data is often volatile, and deficits in June are frequently offset by stronger rainfall in July and August. Investors should become concerned only if the overall monsoon deficit exceeds 20%,” said Chokkalingam.
Chokkalingam pointed out that agriculture accounts for about 18% of India’s GDP. Of this, pure agriculture contributes roughly 12%, while the remaining 6% comes from fisheries, forestry, and horticulture. Moreover, around 55% of cultivable land is now irrigated. As a result, the rain-fed portion of agriculture accounts for only about 5-6% of total GDP, said Chokkalingam.
Further, Chokkalingam added that over the last three years, India has enjoyed good monsoons, resulting in a healthy water table. Water storage levels in major reservoirs are currently better than last year and well above the 10-year average.
India has recorded either record or near-record food grain output over the past three years. Therefore, any shortfall in production due to a weaker monsoon can be managed without triggering a sharp spike in inflation.
Additionally, lower crude oil prices provide a significant cushion. The inflationary impact of a rainfall deficit could be more than offset by the decline in oil prices.
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Disclaimer: This story is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.