Domestic markets are expected to open on a flat note on Tuesday despite volatile global market conditions. Overnight, US stocks tumbled between 2 and 2.5 per cent and most equities across the Asia-Pacific are down in early deals, though Japan’s Nikkei and Korea’s Kospi have eked out marginal gains. Gift Nifty at 24,165 signals a stable opening, though analysts expect volatility due to the upcoming expiry of April derivative contracts.

The return of foreign portfolio investors as buyers is heartening, experts said. If they resort to aggressive buying, the market will sustain the current rally, they further said.

Emkay Global Research, in its market outlook said the pause in tariffs by the US is a big positive, and “we now see little chance of the draconian 2-April proposals seeing the light of day.” The domestic brokerage now  expects a strong India equites to rally with earnings bottoming out, moderate valuations, and global uncertainty substantially reduced. “We retain our Nifty target at 26,000 for Mar-26E,” it said adding that  “We turn positive on Technology and Materials, while retaining OW on Discretionary and Healthcare. We cut our Staples exposure to zero, and retain UW on Financials.” It, however, expects some volatility, though, as news on tariffs ebb and flow, but ignore the noise and buy into any consequent corrections.

Technical indicators present a positive view.

Mandar Bhojane,  Research Analyst, Choice Broking, said: momentum indicators remain supportive of the bullish momentum. “The RSI is at 65.53 and rising, while the Stochastic RSI has triggered a bullish crossover, both suggesting strength and continuation in the uptrend. As long as the index holds above key moving averages and support levels, sentiment is expected to stay positive in the short term.”

Headwinds for banks

A stronger than expected result from the segment leaders – ICICI & HDFC – bolstered the Nifty Bank index to record high levels. The earnings scorecard was marked by positive surprises on NIMs, and asset quality. The sentiment is further buoyed by the central bank’s intent to maintain comfortable systemic liquidity. PSU banks’ improved profitability and progress on governance reforms is also supporting the banking index.

Rohan Mandora, Analyst, Equirus Securities, said: H1FY26 may pose some challenges for banks, as the transmission of a 50 bps repo rate cut is expected in Q1, with an additional 25–50 bps cut likely in FY26. Large private banks – HDFC, ICICI, and Axis – have already reduced their savings deposit rates by 25 bps in April 2025. Some have also cut peak term deposit rates by 5–40 bps — partially mitigating NIM compression. NBFCs, on the contrary, will be beneficiaries as their cost of funds would fall.”

Limited signs of froth

While valuations have expanded in the wake of the rally, they remain meaningfully below historical peak multiples, indicating limited signs of froth, he said. “Asset quality is expected to remain stable overall, though certain segments such as microfinance, unsecured business loans, and credit cards may continue to see elevated credit costs in Q4. We anticipate a more favourable environment for financials, supported by improving business momentum and macro tailwinds from H2FY26 onwards,” he further said.

Published on April 22, 2025