Share market in focus: Global volatility spurs bullish sentiment on Indian stocks

Franklin Templeton and Spark Capital have expressed their views on the Indian stock market, highlighting a generally positive outlook despite global uncertainties. Both firms point to robust domestic fundamentals and strategic responses to international economic dynamics. The Reserve Bank of India’s (RBI) engagement in supporting fiscal stability is seen as instrumental amid shifting global financial conditions. This strategic involvement is crucial as it provides a buffer against external shocks and reassures investors about the resilience of the Indian economy.

A significant development influencing global markets is the Bank of Japan’s decision to reduce purchases of Japanese Government Bonds, causing a surge in yields, especially for long-term bonds. This movement is part of a broader context of rising inflation and fiscal concerns affecting investor confidence globally. Such changes could potentially redirect capital flows towards India, as investors seek more stable opportunities. The shift in capital flows underscores the attractiveness of Indian markets as a safe haven amidst global volatility.

In response to the Swiss franc’s appreciation, the Swiss National Bank is considering a rate cut to mitigate the impact on exports and inflation. This monetary policy adjustment is anticipated to alter investment flows and currency dynamics, which could affect Indian markets. The potential effects on global trade competitiveness and multinational operations are areas of focus for Indian financial analysts. The interconnectedness of global markets means that shifts in one region can have ripple effects, influencing investment decisions and economic strategies worldwide.

India’s fiscal strategy is bolstered by a record RBI dividend of Rs. 2.69 trillion, supporting a fiscal deficit target of 4.8% for FY25. The dividend is expected to enhance economic stability, boosting investor confidence in Indian equities. Franklin Templeton sees this as a positive step towards maintaining economic growth, with increased liquidity potentially invigorating consumer spending and investment activities. This fiscal maneuvering is indicative of India’s proactive approach to economic management, ensuring that growth is sustained even amidst external pressures.

The India–UK Free Trade Agreement, finalised on May 6, 2025, aims to double bilateral trade to $120 billion by 2030. It includes major tariff reductions and labour mobility provisions, which are expected to foster economic cooperation and attract investment. Such trade agreements are vital in enhancing India’s attractiveness as a destination for foreign capital amid evolving global trade dynamics. The agreement signifies a strategic alignment with global economic trends, positioning India as a key player in international trade.

The narrowing of the India–US 10-year yield spread to a 20-year low is another factor influencing foreign capital flows. Driven by US inflation uncertainties and India’s stable economic environment, this development might necessitate strategic adjustments in investment portfolios. Spark Capital notes that while this could influence forex stability, the robust Indian economic fundamentals continue to support foreign investments. This narrowing spread reflects a convergence of economic conditions, highlighting the importance of strategic portfolio management in navigating such shifts.

Indian economic indicators demonstrate strong performance, with rising Composite PMI, record GST collections, and a narrowing trade deficit. These metrics suggest a resilient economic base, which Franklin Templeton believes could sustain further inflows into the Indian stock market. Such positive domestic signals are likely to attract investors seeking stable returns amidst global market volatility. The strength of these indicators underscores the robustness of India’s economic framework, providing a solid foundation for sustained growth.

Externally, India maintains a cautious approach towards Europe and China due to ongoing trade negotiations and economic uncertainties. These geopolitical factors could have complex effects on capital flows and market sentiment, underscoring the need for strategic vigilance. Franklin Templeton and Spark Capital recommend careful monitoring and responsive strategies to leverage these external influences while ensuring continued growth in Indian equities. This cautious stance reflects a nuanced understanding of global dynamics, emphasizing the importance of adaptability in economic strategy.

Markets rebounded following the India-Pakistan ceasefire agreement in early May 2025 and improving growth outlook, with the Nifty 50, Nifty Midcap 150, and Nifty Smallcap 250 posting returns, said Spark Capital. “We are assessing risks using the ‘Elivate’ framework at current asset prices,” it said.

Spark estimates that Nifty50 will deliver earnings growth of 11.2% over CY24-26E. We continue to maintain our equal weight stance on equities. “We will try to mitigate the correction risk by increasing allocation to large-cap and participating through lower beta products and fund managers. On a sectoral basis, we are OW on Banks, Auto, and Pharma,” it added.

FY26 earnings growth revised downwards to 12-13 per cent from 15 per cent earlier. India’s attractiveness continues as India’s GDP growth rate exceeds global peers, said Franklin. “Markets to be in a consolidation phase and not in a secular momentum driven growth. Positive on the financial services sector and underweight on IT due to its dependence on US markets,” it said.