Indian equity benchmarks have continued to outperform most Asian markets, even as global equities faced considerable pressure following an overnight Wall Street sell-off. The decline in US markets was primarily triggered by technology stocks, amid growing concerns over a potential slowdown in artificial intelligence (AI)-related investments and data center spending.
This global weakness in technology stocks has brought the concept of a 'reverse AI' trade into focus. Notably, domestic IT stocks in India bucked the broader market trend, with the Nifty IT index rising more than one percent and emerging as a top performer during the session.
Factors Bolstering Indian Market Resilience
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, highlighted India's potential to be least impacted by the global downturn. He noted that the significant rout in Nasdaq, around 5.6 percent, was driven by worries about reduced data center spending, partly due to the stance of Democrats against massive data center investments. Vijayakumar suggested this tech deceleration could ultimately benefit India.
A key factor supporting the domestic market's resilience is sustained foreign institutional investor (FII) buying. FIIs acquired equities worth Rs 35,781 crore in the five trading days leading up to the report. Despite some selling and profit booking by domestic institutional investors (DIIs), the market is expected to remain robust due to continued FII inflows within the changed global market landscape.
Furthermore, the ongoing market rally in India is underpinned by strong fundamental support from impressive, better-than-expected earnings growth. Large-cap stocks, in particular, have become attractively valued, presenting further upside potential for financials, technology, and auto sectors.
Near-Term Volatility and Geopolitical Concerns
While the broader trend remains constructive, intermittent profit-booking at higher levels cannot be ruled out. Ponmudi R, CEO of Enrich Money, emphasized that the market's ability to sustain its gains will be a crucial near-term indicator of underlying investor confidence.
The India VIX, often referred to as the market's fear gauge, climbed 8.26 percent to 16.87, signaling heightened uncertainty and greater caution among investors. Geopolitical developments also remain a source of concern. Reports of potential expansion of military strikes in the Middle East have kept investors alert to further escalation, which could influence global risk appetite and trigger volatility in crude oil prices.
Against this backdrop, investors are likely to remain cautious, with global market movements, geopolitical tensions, and profit-booking at elevated levels expected to shape near-term market direction.