- Indian markets show resilience with easing geopolitical and tariff risks
- Q1 corporate updates reveal better-than-expected performance amid energy cost shocks
- Banking sector may lead market gains due to strong credit growth and asset quality
The tide is finally turning for Indian markets. For months, the narrative was headwinds. A blocked Strait of Hormuz threatened crude supply. Brent stayed stubbornly high. Tariff wars kept exporters on edge. One by one, these risks are receding, and markets are beginning to price in relief rather than dread.
The clearest signal comes from the boardroom, not the bourse. Initial Q1 updates point to far better resilience than expected during the US-Iran war. Companies that were meant to report weak numbers, weighed down by elevated energy costs and geopolitical disruption, are instead showing they absorbed the shock better than analysts modelled.
Banks look set to be the story of the quarter. Early updates suggest lenders are holding up well on credit growth and asset quality, and if this trend holds through the reporting season, banking stocks could lead the market's next leg up. For a sector that carries the heaviest weight in the index, that matters more than any single headline number.
Tech is having its moment too, though the enthusiasm comes with an asterisk. Indian IT has rallied, but only true believers are willing to back it at current levels. Enough marquee investors have spent close to a year openly saying they carry zero IT exposure in their portfolios for that scepticism to count as consensus, not contrarianism.
The AI trade itself is under fresh scrutiny. Comments from Palantir's chief executive have added to growing questions over whether the AI trade is running ahead of itself. When the loudest voices in AI start hedging in public, it tends to filter through to how investors price the entire theme, IT included.
This week I also had an opportunity to speak with valuation guru Aswath Damodaran. He offers a useful corrective here. His point is simple: don't blame AI for foreign investors not finding India exciting. The reluctance of FPIs to chase Indian equities predates the AI trade and has more to do with valuations and growth visibility than with a rotation into American technology stocks. It is a reminder to separate genuine structural concerns from convenient excuses.
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The next big swing factor is weather, not policy. The market's working assumption is that a strong monsoon from here will make up for the deficit recorded in July. It would not be unprecedented. History shows deficits earlier in the season have been offset by a strong second half before, and a normal to above-normal monsoon by year end would support rural demand and, by extension, consumption-linked earnings into the second half of the fiscal year.
Put together, the picture is one of a market shedding its worst fears while carrying a shorter list of live risks: whether IT can justify its rally, whether the AI trade corrects, and whether the rains cooperate. None of these are new problems. But for the first time in months, none of them look like the market's base case either.
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