Where's the stock market headed in bull vs bear battle? An investor guide

India's initiatives to expand manufacturing capacity and increase spending will help offset any weak global demand, Moody's said

As Indian equities whipsaw and struggle to find direction after recovering from recent lows, analysts reckon this consolidation is likely to continue amid opportunities in select pockets. The main focus for investors in this backdrop should be on asset allocation, analysts suggest, with safe-haven assets continuing to shine.

 

The de-escalation of geopolitical tensions with Pakistan and signs of global trade returning to normalcy after the US-China trade deal boosted the risk-on sentiments in the last few trading sessions.

 

Since the lows of April 7, the 30-stock Sensex and Nifty have moved up 15 per cent till May 15. In the last couple of sessions, however, exhaustion has crept in as the frontline indices have not moved much.

 

 

With the fourth quarter results season largely behind, earnings have been lacklustre apart from a select few, analysts say. Valuations have moderated but are on the rise amid recovery, while a revival in foreign inflows is seen.

 

"Both bulls and bears are likely to benefit from the current market momentum," says Shrikant Chouhan, head of equity research at Kotak Securities. With the intensity of news flows decreasing, investors must seek opportunities in dips, he added. 

What's on the bull's radar?

While the current volatility is set to remain for the short term, market experts now focus on the strength of India's improving macroeconomic indicators for the next leg of the rally.

 

Markets are now turning their attention to macroeconomic indicators, and the current setup looks broadly supportive, according to Vaibhav Porwal, co-founder of Dezerv, a Mumbai-based wealth management company. Global funds have mopped up stocks worth over ₹31,200 crore in two months, inflation has cooled to a six-year low, the Rupee's gains from a weak dollar, strong tax collections and softer global oil prices are some of the signs, he said.

 

The decline in consumer prices has paved the way for further rate cuts by the Reserve Bank of India's Monetary Policy Committee (MPC), analysts said. "Going forward, we expect markets to take cues from the strength of these macro factors," Porwal noted.

 

India's initiatives to boost private consumption, expand manufacturing capacity and increase spending will help offset any weak global demand driven by tariff uncertainties, Moody's said in a recent note. 

The bear's side

Bears, in the days ahead, will likely pin their hopes on global geo-political tensions and broader market valuations after the recent market spurt, according to analysts.

 

US President Donald Trump's see-saw on tariff policies is likely to keep traders and investors on the edge. While the conflict with Pakistan has subsided, reports show that Israel is preparing for a potential strike on Iranian nuclear facilities, weighing on crude oil prices.

 

The broader market still prices in a lot of optimism, Porwal said. "We remain cautious on the mid- and small-cap space from a valuation standpoint. While select businesses in these segments continue to deliver robust growth, the broader basket is pricing in a lot of optimism."

 

A catch-up in the broader market will depend not just on sentiment or liquidity, but on earnings delivery across the board, he added. 

Investors playbook

Investors, analysts suggest, should consider locking in yields through 2 to 3-year maturity bonds, Porwal said, as fixed income is offering attractive real returns. One should consider allocating 8-10 per cent of their portfolios to gold, and he maintains a large-cap bias on equities.

 

Markets will continue to see mixed activity and investors should consider seeking investment opportunities during dips, says Chouhan. If the market reaches the support level, investors should invest in large banks or non-banking financial companies (NBFCs), capital market-related stocks, to capitalise on the opportunity in the market, he said.