Moderate corporate earnings and geo-political tensions creating short-term pressure on market: Report

New Delhi [India], October 7 : The Indian equity markets are facing a short-term pressure because of the moderating corporate earnings and the rising geopolitical tensions, highlighted a report by Motilal Oswal.
The report stated that the corporate earnings growth, which has seen four consecutive years of strong double-digit growth, is now starting to slow. This slowdown is mainly due to pressures from rising commodity prices and diminishing benefits from the improvement in the asset quality of banks and financial institutions.
"Corporate earnings, after four consecutive years of healthy double-digit growth, are moderating due to pressures from commodities and fading tailwinds from BFSI asset quality improvements" said the report.
The report also added that the Indian stock markets are expected to face some turbulence in the near term. It noted that the ongoing conflict between Israel and Iran, combined with the ongoing Russia-Ukraine war and the Israel-Palestine conflict, is likely to impact market sentiment, adding uncertainty to the already delicate situation.
"It appears the waters may get a bit turbulent for Indian equities in the short term. The recent escalation in the Israel Iran conflict only adds fuel to the fire of the already simmering geopolitical tensions" said the report.
The report also noted that before the current pressure the Indian equities have experienced a remarkable rise over the past few years.
The Nifty index, along with the Nifty Midcap 100 and Nifty Smallcap 100 indices, have seen impressive growth. Over the last 12 months, these indices have rallied by 31 per cent, 48 per cent, and 50 per cent, respectively, while over the past three years, they have surged by 14 per cent, 26 per cent, and 21 per cent. This remarkable performance can be attributed to several key factors.
"This remarkable journey can be attributed to a trifecta of factors: robust corporate earnings, with a staggering 24 per cent Nifty earnings CAGR over FY20-FY24" said the report.
Additionally, domestic investors have shown strong interest in equities, with an inflow of USD 107 billion between 2021 and 2024 so far. This influx of funds, along with a resilient macroeconomic environment, has helped the markets weather various challenges, including the Indian General Elections and the Budget, with minimal volatility.
However, the situation is not without risks. Foreign Institutional Investors (FIIs) have been pulling out funds from Indian markets, prompted by monetary stimulus measures in China.
It indicates that the near-term outlook appears uncertain, as geopolitical tensions and other external factors begin to weigh on market sentiment.