Market Rally Follows Three Years of Weak Performance Amid Global Uncertainty and High Valuations

The Indian stock market witnessed a sharp rally on Thursday, with the Sensex surging nearly 2,100 points to close at 79,373.18. The rise came amid declining crude oil prices and hopes of a possible resolution to the Iran conflict. However, the market had remained around the 74,000 level for nearly three years, weighed down by geopolitical tensions, a weakening rupee, slowing economic growth and uncertainty over a trade agreement with the US.

Speaking to The Indian Express, Sankaran Naren, Executive Director and Chief Investment Officer at ICICI Prudential AMC, said high valuations three years ago, rising crude prices and global conflicts had affected investor sentiment. He also pointed to strong artificial intelligence-led growth in countries such as the US, South Korea, Taiwan and Japan, which attracted investments away from India.

Naren said Indian promoters, private equity firms and multinational companies used the strong domestic investor appetite to sell shares through IPOs and listings at relatively high valuations, limiting market returns.

He identified the long-term impact of artificial intelligence on India as his biggest concern, saying its consequences remain uncertain. He also stressed the need to create manufacturing jobs on a large scale to support India's ambition of becoming a $20-trillion economy.

Banking, Aviation and Asset Allocation Among Key Investment Considerations

Naren said banking, aviation and oil marketing companies could benefit if crude prices decline following an end to the conflict. Lower oil prices could also ease inflationary pressure and reduce the need for further interest rate hikes.

On domestic fundamentals, he highlighted controlled fiscal and current account deficits, strong credit growth, rising automobile sales and power demand. However, a weak monsoon and the possibility of El Niño remain concerns.

Advising retail investors to adopt disciplined asset allocation, Naren recommended balanced advantage, balanced hybrid and flexi-cap mutual funds as key investment categories. He suggested multi-asset funds for investors seeking exposure to gold.

He cautioned young investors against entering derivatives without sufficient knowledge and experience, recommending mutual funds during the initial years of investing. He also advised investors not to discontinue systematic investment plans during market downturns, as falling markets can offer opportunities to accumulate investments.