When Will the Indian Stock Market Recover?

The Indian stock market has been extremely volatile over the last few months. Just as investors come to terms with one event, something else hits them in the face.

The 50% tariffs on India imposed by US President is just the latest in a series of back and forth sentiment drivers in the Indian market.

Back in early April, when Trump first announced universal tariffs, the market fell. Investors were caught off guard.

Then, just a few days later in April Trump announced a pause in his tariff plan to allow for negotiations.

And the markets soared.

Then came the military conflict between India and Pakistan. The markets became cautious once again.

But then the conflict ended and the Indian stock market came under the control of the bulls again.

The Nifty 50 soared from 24,000 to 25,600 in about a month and a half, despite geopolitical tensions and concerns about tariffs.

However, things changed in July as the market struggled to continue its upward momentum. Those who expected a new all-time high were disappointed.

The 50% tariff on India that was announced by Trump, dealt a huge blow to market sentiment.

The bulls were extremely confident back in June are now in a state of uncertainty.

And now there is news of the Summit in Alaska between Trump and Putin that holds a tentative promise of ending the war in Ukraine.

If an agreement is reached, the markets will certainly applaud it. If not... then more downside cold be the result.

How Will the Stock Market Move Now?

The initial reaction will be decided on Monday, as the markets digest the outcome of the Alaska Summit.

But what happens after that?

No one can say. It's the very nature of the stock market to be uncertain. After all, if there was certainty about the future, then everyone would try to take advantage of it and get rich.

We all know that is not possible.

However, after the initial react to whatever happens over this weekend, it's likely that the market will move in the opposite direction for a while as profit booking kicks in.

In other words, if the market falls, there will be a short pull back later.

And if the market rises, there will be a short correction after that.

That's all we can say about the short term.

Our View

Equitymaster, has been in the market for over 30 years and there is one thing we know for certain: No one can predict the future and more importantly, no one should attempt to do so.

We strongly believe that time in the market is far more important than timing the market.

In the long term, the Indian stock market will go up along with the Indian economy. We have even made a Sensex 100,000 by 2027 prediction. But that's based on earnings growth, not sentiment.

Instead of trying to profit from every small move in the market, a far better thing to do would be to make a watchlist of high-quality stocks and act on them when valuations become reasonable.

Do your due diligence. Consider factors such as valuation, industry trends, corporate governance, and market risks before making any investment decisions.

What about the stocks already in your portfolio?

In this uncertain environment, if you are concerned about the stocks in your portfolio, then ask the following questions...

• Are the company’s fundamentals weak?
• Has there been any recent negative changes in the company’s fundamentals?
• Did the PE ratio shoot up without an improvement in the company’s earnings?
• Did you make a mistake in your original analysis at the time of buying?

These are all good reasons to sell or at least reduce your holdings.

But as is the case with any stock, you must allocate sufficient time to do the necessary due diligence.

If the answers to the questions above is a clear 'NO', then you can consider holding on, especially if the valuations are not too expensive.

Should You Buy Stocks Now?

If fundamentally strong stocks on your watch become available at reasonable prices, i.e., a low valuations, then you can consider them.

The best stocks to invest in right now - as long as the fundamentals are strong - are the ones that have suffered a correction of some sort for sentimental reasons.

These reasons should be short term in nature - tariff concerns, margin pressures, a cyclical slowdown in its industry, etc.

As long at the core fundamentals of the business are fine, investments can be considered at reasonable valuations... even in the face of market uncertainty.

In the stock market, you will never get good news and cheap prices. Positive market sentiment will always lead to a run up in stocks. It will be too late to buy then.

The time to buy will is when sentiment is negative. Keep that in mind in case there is a correction.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...