Global markets are closely tracking a potential US–Iran agreement that has helped ease concerns around geopolitical risk and crude oil volatility. While the development is seen as a positive macro trigger, Indian equity markets are not responding with strong optimism.
Speaking to ET Now, market expert Rajeev Agrawal from DoorDarshi India Fund said the shift is clearly a relief, but investors should not rush into conclusions as key details of the agreement are still unclear.
He noted that even minor clauses, such as possible shipping tolls through the Strait of Hormuz, could have broader implications. According to him, the main positive is the removal of uncertainty, which has been weighing on sentiment for some time. He added that improved earnings visibility, particularly in smallcap and midcap segments, could support markets heading into FY27.
Crude correction helps, but equities remain restrained
Despite a sharp decline in crude oil prices, Indian equities have not witnessed a broad-based rally. This, according to Agrawal, reflects a more valuation-conscious market rather than a risk-on environment.
He said that markets are still adjusting after a period of elevated valuations, which has led to a time correction rather than a sharp price correction. Valuations, he added, are now closer to median levels, which is a healthier setup for future gains.
However, he stressed that the next meaningful move for markets will depend on earnings delivery. While selective opportunities exist across sectors, he cautioned that pockets of euphoria are still present, making the overall market less compelling on a broad basis.
Global rate cycle adds uncertainty to capital flows
Attention is also shifting to upcoming central bank decisions, with the Bank of Japan, US Federal Reserve, Reserve Bank of Australia, and Bank of England all in focus. Markets are watching closely for signals on whether the global rate cycle is turning more restrictive.
Agrawal said that if major economies begin tightening or normalising rates further, it could lead to capital staying within domestic markets, as local bond yields become more attractive. He pointed out that Europe has already moved in this direction, and Japan may follow suit depending on inflation dynamics.
He also highlighted that while domestic flows into India remain strong, foreign institutional investor outflows continue to be a concern. Sustaining domestic inflows will be key for market stability going forward.
Domestic themes and sector preferences remain clear
On sector positioning, Agrawal said he continues to favour domestic-focused themes, particularly real estate and financials. He highlighted that real estate companies are witnessing strong pre-sales momentum and robust project pipelines, especially in key urban markets.
He added that the sector’s transition from unorganised to organised players is now becoming visible in earnings and operational performance. Despite earlier concerns around macro disruptions, underlying demand trends remain strong.
On financials, he reiterated his bullish stance on lending companies, noting that corrections in stock prices have provided selective opportunities for accumulation.
Outlook: Earnings will decide the next leg
Overall, while geopolitical risks appear to be easing and macro conditions are stabilising, market participants are not yet ready for a broad rally. The consensus view emerging from the discussion is that valuation comfort has improved, but earnings growth—particularly in FY27—will be the decisive factor for the next major market move.
