In a span of one and a half months, the Indian market recouped more than 75% of the broad market’s total loss of 21% made during the consolidation period between September 2024 and April 2025. However, the recent trend shows a cautious undertone, with the Nifty50 oscillating in a tight range of 750 points — between 24,500 and 25,250 — indicating indecision and a mild downward bias. 

The muted market trend reflects the fact that much of the optimism surrounding a recovery in domestic earnings and easing global risks, such as tariff-related concerns, has already been factored in. After a consequent fall in corporate earnings in Q2 and Q3 FY25 results, Q4 has provided a glimpse of an upgrade in earnings. In anticipation of recovery in domestic capex and moderation in inflation, the market expects that FY26 will be much better than FY25. However, after the recent market rebound, the market is waiting to guess further about the details, i.e., Q4 has shown about a 10-12% rebound in earnings, which may not be good enough to sustain India’s current premium valuation. The need is that it should sustain higher growth in the long term, like towards an average of 15% growth, to keep alive the one-year forward P/E of India at 20-21x. 

Diverging views have emerged amid signs of a global economic slowdown and escalating geopolitical tensions in the Middle East. The World Bank has lowered its global GDP growth forecast for CY25 by 50 basis points to 2.3%, with only a marginal improvement expected in CY26 to 2.5–2.6%. The downgrade is largely driven by increasing trade frictions, policy uncertainty, and subdued investment activity, resulting in growth forecast cuts for nearly 70% of economies. Against this backdrop, the Indian market is projecting a modest earnings growth of around 10%, which may not be enough to sustain the prevailing positive sentiment. Therefore, the upcoming Q1FY26 earnings— due in the next 2–3 weeks — will be crucial in determining the market’s near-term trajectory. 

Secondly, the temporary pause in reciprocal tariffs, which is currently on a 90-day grace period, is set to expire in July. So far, the markets have shown little concern about it, buoyed by expectations of a constructive, long-term bilateral trade agreement (BTA) with the U.S. Such an agreement is anticipated to mitigate long-term risks associated with tariff volatility and deglobalisation trends. However, investors remain watchful for concrete developments, as any delay or setback could reignite concerns, particularly with the rising cost of operations in an increasingly protectionist global environment.

Additionally, escalating tensions in the Middle East have introduced a note of caution in both global and domestic markets. India, which was basking under the cut of crude prices, is taking a setback from the rise in risk. In the aftermath of the Gaza conflict, Israel has escalated its response to Iran’s advancing nuclear ambitions, increasing fears of a broader regional crisis. The potential involvement of the U.S. in this complex situation has further unsettled investor sentiment. Despite this, markets witnessed a relief rally on Friday, driven by hopes of a possible diplomatic breakthrough between the U.S. and Iran. 

Domestic players are exploring the pattern to book profits under the rise of geopolitical tension and lack of a new trigger. In the future a domestic trigger could be the continuity of the earnings outlook in Q1FY26, whereas globally it could be the smooth completion of BTA and moderation in Middle East tension regarding which a better clarity is expected in July. This means that the market may continue to trade in a volatile pattern within the narrow range of 24,500 to 25,250 for the Nifty50 index, as noticed in the last 4-5 weeks. Large-cap stocks are anticipated to outperform during this period, with a selective approach recommended for mid and small caps. Should tensions escalate, 24,000 is expected to act as a strong support level. To cross beyond 25,500, steady upside in domestic Q1 earnings growth, concrete BTA and drop in global tensions are required.

The author, Vinod Nair is Head of Research at Geojit Financial Services.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making investment decisions.