India's recent market correction could ultimately strengthen the long-term outlook for equities, according to Jim O'Neill, former Chief Economist at Goldman Sachs and former Chair of Chatham House, who believes the pullback follows an extended period of strong gains in Indian markets.
Speaking to NDTV Profit on the current global environment, O'Neill said Indian equities had enjoyed a strong run over the past decade and were due for a period of consolidation.
“Given the previous decade the Indian markets had enjoyed, it was natural that a correction would come,” he told NDTV Profit. “A lot of other markets actually outperformed India last year, and given the scale of the previous rise, a correction in Indian markets is healthy in the long term.”
Despite the near-term volatility, O'Neill remains constructive on India's long-term prospects. "Given India's demographics, and as we begin to see more evidence that government reforms are starting to bear fruit, it puts the Indian market in a better position than it had been in the past two years,” he said.
The recent correction could also help cool excessive market enthusiasm that had begun to build up in certain segments.
“I was concerned when reading anecdotal stories about the sheer scale of equity derivatives activity in India. That was a classic sign of overheated enthusiasm,” O'Neill noted.
According to him, the current moderation in markets could help reset valuations and create a healthier foundation for future growth.
“Now that conditions have cooled somewhat, assuming prices stabilise, Indian markets could begin to perform structurally better over the coming months,” he said.
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Oil Prices And Geopolitical Tensions
O'Neill also highlighted the role of global geopolitical developments in shaping market sentiment, particularly tensions in the Middle East and their impact on energy prices.
He said a combination of uncertainty and fear has been driving volatility in global markets.
O'Neill said the global energy market remains heavily dependent on the continued flow of oil through key shipping routes such as the Strait of Hormuz.
However, he believes oil prices could decline over the next two to three months if the situation stabilises. “I wouldn't be surprised if, two or three months from now, oil prices are significantly lower,” he said. There could still be short-term disruptions if geopolitical tensions intensify, he cautioned, but global markets are likely to gradually find stability.
With diplomatic developments expected in the coming weeks, including potential geopolitical engagement between major powers, O'Neill believes market sentiment could begin to improve before long. “There may be near-term repercussions,” he said, “but oil prices may cool and global markets could find their way back within the next few months.”
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