The market was right to stay calm last week and is now celebrating - with the Nifty 50 jumping 3.82 percent on May 12, as border hostilities eased over the weekend after a rapid military escalation that saw a strong counterattack by India on Pakistan’s air bases and defence installations. The nervousness had resulted in Nifty 50 snapping a three-week gaining streak last week, as investors turned cautious fearing a armed conflict.
Now, with India-Pakistan tensions easing, fourth quarter earnings beating expectations, and foreign investors making a strong comeback, the market mood has clearly shifted.
Follow latest updates on India-Pakistan Ceasefire right here.
Add to that the improving odds of favourable trade deals with the US and EU, and investors have a cocktail of optimism brewing. Here's why this rally, despite a gap up start, may have further legs.
Earnings: Finally, Some Follow-through on Fundamentals
Corporate India seems to be turning a corner, and the numbers seem to be backing it up. Of the 472 companies that have declared results so far, net profit has jumped 12.4% sequentially - the best in eight quarters. On a year-on-year basis, the net profit is up 10% on year, highest in two quarters. Revenue too has grown both QoQ and YoY, and though margin growth has slowed a bit, it’s still a solid 21.35%.
What’s even more encouraging? Analysts now believe FY26 earnings could grow 12%, which would make Nifty 50 valuations at 18.4 times, neither too hot, nor too cold.
FPIs: Welcome back, global money!
After months of playing hard to get, foreign investors seem to be back in town. FIIs have pumped in $5.8 billion into Indian equities since mid-April, which is four straight weeks of positive flows, with India topping the charts among emerging markets, along with Taiwan and Brazil.
This isn't just a one-off, there’s a broader shift underway. Global investors are diversifying away from dollar-heavy US markets, and emerging markets - especially India - are back in favour. Last week alone, India saw $326 million in net inflows, after a blockbuster $724 million, the week before. Plus, $257 million of that came into India-dedicated funds, according to The Global Liquidity Tracker Report by Elara Capital. The cherry on top? Many foreign desks are now tactically rotating out of China and into India. With domestic inflows stable, this trend may as well continue in the future.
Stocks Likely in the Limelight
Apart from earnings, the week’s big movers included companies set to benefit from the Free Trade Agreement with the UK, and that’s just the beginning. If trade deals with the EU and US go through, sectors like manufacturing, electronics, pharma, auto and select industrials could see real momentum.
Textiles have already had their rally, so that space may cool off in the short term. However, investors may watch out for defence stocks, as there is a rising conviction that India will keep boosting defence spending. Indigenisation remains a key theme here, though investors should be mindful that these companies are already richly-valued and ramping up capacity is not going to be easy. Execution, more than narrative, will be key from here.
Read More: India’s defence drone industry surges to forefront amid Operation Sindoor response
What Next?
Sure, markets have run up quickly, and may have even priced in a bit too much of optimism, but that doesn’t mean it’s time to back off. It just means discipline is the name of the game. Don’t chase, don’t panic, and keep an eye on valuations. Investors can benefit by staying stock-specific and riding the wave with a steady hand.
The market has spoken, and this time, the cheer may be well-deserved.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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