Geopolitics to weigh heavy on market sentiments

This week, we expect volatility in the Indian market on the back of geo-political developments between India and Pakistan after the terrorist attack in Pahalgam, Kashmir. Market participants would continue to track the global market cues, corporate earnings and developments on US tariffs.

In a positive development last week, the United States Treasury Secretary indicated that India could be the first country to sign a trade deal with the US, following Vice President JD Vance’s four-day visit to India. Foreign Institutional Investment buying sustained for seven consecutive sessions (up to Thursday, last week), with cumulative inflows of around Rs 29,500 crore, supporting the market.

Stock/sector specific action will continue with Q4 (January-March) earnings announcements from several large-caps like Ultratech Cement, TVS Motors, Bajaj Finance, Trent, Ambuja Cement, BPCL, IOCL, and Marico amongst others this week. Further, heavyweights State Bank of India and Kotak Mahindra Bank will be announcing results on Saturday. On the macro front, investors would watch out for key data including US Q1 GDP, manufacturing PMI of US, China and India, Bank of Japan’s interest rate decision, and India’s industrial production data.

Last, Nifty 50 ended higher by 0.8 per cent at 24,039. It had witnessed a rally of 12% in ten trading sessions up to April 23 on the back of strong domestic cues and hopes of a Bilateral Trade Agreement with the US. However, geo-political tensions after the Pehelgam terror attack led to a decline towards the end of the week. Nifty Midcap100 and Smallcap100 were up by 1.7 per cent and 0.8 per cent respectively. Nifty IT was the top sectoral performer with gains of 6.6 per cent, backed by positive momentum in the US Nasdaq index and better than expected guidance from HCL Tech, Tech Mahindra and Persistent Systems. Nifty Bank closed with 0.7 per cent gains after surging to an all-time high during the week supported by strong quarterly earnings from major banks and consecutive rate cuts by the RBI.

RBI announced lower than proposed LCR(Liquidity Coverage Ratio) requirement on deposits, intending to enhance the overall liquidity position of the banking sector. The final guidelines suggest a lower run-off factor for internet and mobile banking-linked retail and small business customer deposits. Further, it also recommends reducing the run-off factor for wholesale funding from ‘other legal entities’ to 40 per cent from the current 100 per cent. These revised guidelines will ease the funding and liquidity conditions for banks and further support their operating performance.

The Indian BFSI sector has experienced a remarkable 50X surge in market cap over the past two decades, reflecting a compound annual growth rate of around 22 per cent. While banks remain the backbone, their share in the total sector market cap has declined to 57 per cent from 85 per cent in 2005. This shift is largely due to the emergence of NBFCs and fintech firms, backed by technological shift and innovation. The Fintech space boasts a market cap of Rs 12 lakh crore, both listed and unlisted together. 

Retail credit in India has witnessed significant growth, with its share of GDP rising to 18 per cent in FY25 from 9 per cent in FY14. This growth has been driven by private banks, increasing digitalization, emergence of fintech platforms and relentless efforts by the regulator to promote financial inclusion. Despite this, India’s retail credit penetration remains below global standards, indicating substantial growth potential, particularly with the growing middle class population.

(The author is head of Research, Wealth Management, Motilal Oswal Financial Services Ltd)