NEW DELHI: Indian stock markets are expected to remain in a ‘corrective to consolidation’ phase for the next three to four months, according to a report by Motilal Oswal Wealth Limited.
The report highlighted major macroeconomic trends and policy shifts that are influencing equity markets, especially the impact of rising interest rates by the US, rising fiscal deficit, continuous inflation and uncertain Trump policies.
“This is of significance because yields are persisting at levels last seen during the 2007-08 period and markets expect yields to remain higher for longer, as indicated by Fed Futures probabilities,” the report added.
Another major shift is Japan’s movement towards higher interest rates, marking a transition from its 15-year ultra-loose monetary policy. This change could have major implications for global financial markets, given Japan’s role in the carry trade.
What is a corrective phase?
A corrective phase occurs when stock prices pull back after a strong rally, often due to profit-booking or external economic factors. Meanwhile, a consolidation phase sees markets moving sideways, fluctuating within a set range without making significant gains or losses.
Adding to the market uncertainty is the growing trend of deglobalisation. The US has recently imposed new tariffs, aiming to protect domestic industries. While these measures are not as aggressive as initially presumed and may be part of a broader negotiation strategy, they signal potential disruptions in global trade, the report noted.
“Rising fears of a global trade war amidst the increasing likelihood of higher-for-longer interest rates have strengthened the Dollar Index to above 108 levels, triggering risk-off mode and FII outflows from emerging markets,” it added.
Impact on Indian markets
The combination of rising US yields, global trade tensions, and continuous foreign institutional investor (FII) outflows has led to sharp corrections in Indian equity markets.
Last week, the market traded within a tight range and ended nearly 0.5 per cent lower, extending the ongoing correction. With no major domestic events to drive sentiment, investor focus remained on foreign fund outflows and US trade policies.
So far this year, foreign portfolio investors (FPIs) have pulled out a massive Rs 1,01,737 crore from Indian markets, according to data by the National Securities Depository Limited (NSDL).