Indian stocks are expected to remain under pressure this week as ongoing geopolitical tensions in West Asia weigh on global risk sentiment. Iran’s rejection of a US-backed temporary ceasefire proposal has raised the risk of prolonged disruptions through the Strait of Hormuz and the Red Sea, keeping energy markets on edge and pushing Brent crude oil prices above $100/barrel (up 13%). This has raised concerns about India’s inflation, energy supplies and external balances. Continued weakness in the rupee (around Rs 96.6/US$) and sustained selling by Foreign Institutional Investors (FIIs) are also likely to keep investor sentiment cautious. However, the ongoing Q1FY27 earnings season is expected to spur specific stock and sector action, helping to limit the broader decline. Top gainers this week include BEL, Coal India, Hindustan Unilever, Larsen & Toubro, Adani Ports, Mahindra & Mahindra, Maruti Suzuki, Coforge, Bajaj Finance, Colgate, Sun Pharma and Glenmark Pharmaceuticals.
Globally, investors will closely monitor the US Federal Reserve’s policy decision, with interest rates expected to remain unchanged, along with Chairman Kevin Warsh’s commentary on inflation guidance and the timing of any future policy easing. Markets will also watch the Bank of Japan policy meeting, US Q2 GDP, PCE core inflation, non-farm payrolls, China PMI data, Eurozone GDP and inflation and India’s Infrastructure Production for further direction on global growth and interest rate expectations. Meanwhile, the ECB kept its key policy rates unchanged at 2.25%, maintaining a data-driven approach, while warning that high energy prices and geopolitical tensions have increased uncertainty about the inflation outlook. ECB President Christine Lagarde reiterated that future policy decisions will remain meeting-by-meeting and driven by incoming economic data.
Last week, domestic equities witnessed broad-based weakness amid escalating geopolitical tensions, higher crude oil prices and continued FII outflows. Nifty50 fell 2.3%, while Nifty Midcap100 and Nifty Smallcap100 fell 1.3% and 2.2% respectively. India VIX rose 7%, indicating increased volatility. Sectorally, FMCG (+1%) was the lone big gainer, supported by defensive buying and encouraging quarterly earnings, while Auto was largely unchanged as strong results from Bajaj Auto and TVS Motor offset broader market weakness. Real Estate (-4%) emerged as the biggest laggard, followed by Banking (-3%), reflecting risk aversion and FII selling.
The sectoral focus is expected to remain on FMCG, Auto and Pharmaceuticals. After strong results from Nestlé India, upcoming earnings from Hindustan Unilever and Colgate-Palmolive will provide important insights into consumption trends, price trends and margin outlook. The auto sector will be closely watched, with results from Mahindra & Mahindra and Maruti Suzuki following healthy quarterly performances from Bajaj Auto and TVS Motor. The government’s decision to extend incentives for domestically produced electric two-wheelers beyond July, with subsidies expected to remain around Rs 5,000 per vehicle, should continue to support EV demand. In contrast, pharmaceutical stocks may remain volatile after the US proposed a phased tariff framework for imported generic drugs, creating uncertainty about the long-term outlook for Indian exports despite the proposed two-year transition period.
As of July 19, the cumulative rainfall deficit had narrowed to 24% below the long-term average, compared with 40% in June, while reservoir storage improved to 34% of capacity from 26% earlier in the month. Although kharif sowing remains 6% lower year-on-year, improved rainfall, healthy demand for tractors and stable rural credit trends suggest that rural conditions remain manageable.
Overall, rising crude oil prices, developments in West Asia, currency movements and FII flows are expected to remain the key drivers of the near-term market. However, resilient domestic macroeconomic fundamentals, healthy corporate earnings and structural growth opportunities across electronics manufacturing, wealth management and consumption continue to support the medium-term investment outlook.
(The writer is Head of Research, Wealth Management, Motilal Oswal Financial Services Ltd)
