Geopolitical Tensions, High Valuations and Investor Selling Weighed on Markets

The BSE Sensex surged nearly 2,100 points to close at 79,373.18 on Thursday, supported by declining crude oil prices and hopes of a possible resolution to the Iran war following the Republican Party's poor performance in the US midterm elections.

Before this rally, the benchmark index had remained around the 74,000 level for nearly three years, reflecting continued pressure on investor sentiment. A weakening rupee, volatile crude prices, geopolitical tensions, slowing economic growth and uncertainty over an India-US trade agreement were among the major factors affecting market performance.

In an interview with The Indian Express on October 27, Sankaran Naren, Executive Director and Chief Investment Officer at ICICI Prudential Asset Management Company, explained the factors behind the market slowdown.

According to Naren, elevated market valuations three years ago were one of the reasons for subdued returns. He also highlighted geopolitical conflicts, including the wars in Ukraine and the Gulf region, and rising crude oil prices as major concerns.

Another factor was the growing attraction of international markets, particularly the US, South Korea, Taiwan and Japan, where artificial intelligence-led growth has outpaced India's economic expansion.

AI Emerges as a Major Long-Term Concern for Indian Markets

Naren also pointed to sustained selling by three categories of investors despite significant inflows into Indian equity mutual funds since March 2023.

These included Indian promoters launching initial public offerings (IPOs), private equity investors exiting earlier investments and multinational companies listing their Indian businesses to benefit from relatively higher domestic valuations.

He observed that a substantial portion of the money entering equity markets was absorbed by these selling activities, limiting overall market returns.

When asked about the biggest risks facing investors, Naren identified artificial intelligence as his primary long-term concern. He said geopolitical conflicts and elevated oil prices could eventually ease, while IPO activity could moderate.

However, AI could represent a structural shift in the global economy, and its long-term impact on India remains uncertain. He cautioned that even professional fund managers cannot confidently predict how the technology will reshape India's economic and investment landscape.