Domestic markets are likely to open on a flat note on Tuesday. Analysts, however, warn that the market may remain volatile due to global uncertainty.
Asian markets have opened with a positive bias. The KOSPI is trading nearly 2.5 per cent higher, while the Nikkei 225 remains marginally positive as declining oil prices helped lift regional sentiment.
Hariprasad K of Livelong Wealth said Indian equities are expected to open on a positive note today, supported by firm global cues. Early indications from Gift Nifty, which opened around 23,525, signal a higher start for domestic markets after the recent corrective phase. Global sentiment improved overnight as easing crude oil prices supported risk appetite.
However, continued FII outflows remain a significant overhang on the market, reflecting global risk aversion and a shift in capital flows away from emerging markets. This is thereby exerting additional pressure on the local currency, said Ponmudi R, CEO of Enrich Money. “In contrast, robust DII inflows have helped stabilise the market by offsetting foreign selling pressure and containing downside risks in recent sessions,” he added.
From a macroeconomic perspective, inflation risks remain elevated, particularly if crude oil prices rebound. This could also lead to a widening current account deficit (CAD) and exert pressure on corporate margins in oil-sensitive sectors such as automobiles, aviation, and chemicals, he further said.
War impact
Meanwhile, analysts expect limited downside from current levels.
According to Emkay Global Research, continued hostilities in the Gulf imply crude staying higher for longer, with over $100/bbl for 3-4 months looking worryingly probable. “This would jolt India’s growth, macro stability, and earnings, with LPG shortage threatening serious disruption of daily life. We also fear second-order challenges from a global growth-inflation shock. This scenario is not priced in, and we see another 10 per cent further downside risk for the Nifty in the absence of a détente,” it said.
The correction would be temporary. Once crude normalises to ~$70/bbl, India’s economy and earnings should recover and, therefore, this is an entry opportunity from a 1Y+ perspective, it further said, adding, “We believe some stocks have already overcorrected and see Eternal, Bajaj Finserv, HDFC Bank, and Max Healthcare as attractive beaten-down ideas at this point.”
Declining volatility index
The volatility index, India VIX, declined by 4.60 per cent to close at 21.60, indicating easing market volatility and a reduction in risk perception among market participants.
“Considering the ongoing geopolitical tensions, traders are advised to remain cautious near the key support and resistance levels and wait for a clear breakout on either side before initiating fresh directional trades,” said Aakash Shah, Technical Research Analyst at Choice Equity Broking Private Limited.