Narinder Wadhwa, Managing Director, at SKI Capital Services Ltd
The ongoing Iran-Israel conflict is creating significant ripples in global markets, leading to a surge in crude oil prices. For India, which relies heavily on oil imports, this rise in crude prices is concerning. It could exert upward pressure on inflation, widen the fiscal deficit, and limit the RBI’s flexibility to adjust monetary policy. While inflation has been stable recently, sustained high oil prices may disrupt this balance, forcing the RBI to adopt a more cautious stance.
In addition to geopolitical tensions, Indian markets are grappling with stretched valuations. After a prolonged bull run, certain sectors appear overvalued, heightening the risk of corrections, especially if global factors worsen or domestic growth slows. This makes the market more susceptible to fluctuations, with high volatility likely becoming the norm in the near term.
Foreign Portfolio Investors (FPIs), who have been net sellers in recent months, are also contributing to this volatility. Driven by risk-off sentiment due to geopolitical uncertainties, FPI outflows could further strain market liquidity. However, India’s long-term growth story remains compelling, and we could see FPI inflows resume once global uncertainties ease.
Further compounding market volatility are the recent regulatory changes in the Futures & Options (F&O) market. SEBI’s move to curb speculative trading will likely slow down retail investor activity, which has been a major driver post-pandemic. As retail participation pulls back, mid-cap and small-cap stocks could witness some consolidation, adding to market instability in the short term.
