Mumbai: The stock market often thrives on narratives. When there is limited hard evidence to sell a story in the market, a narrative takes root, giving investors clarity and conviction to make sense of ongoing events. In India, as equities claw their way out of six punishing months, a new narrative that’s gaining ground is: the recent market decline was merely a ‘bull market correction’. For many bruised investors, the interpretation is comforting. But in a world riddled with complexities-from the haze over the economic fallout of US tariffs to the US debt problem-this interpretation risks masking deeper issues in the background.Since April, Donald Trump’s tariff policy has been the biggest driver of the market. After tumbling in response to the US president’s reciprocal tariff announcement in early April, the market has seen a relief rally after the US paused the tariffs for 90 days and initiated negotiations with China. The rebound helped Nifty cross the 25,000 level for the first time in seven months recently, while foreigners are on track to have made the highest monthly purchases so far in 2025 in May, prompting a section of the market to believe that the bull market has picked up from where it left off last year.The recent momentum, if uninterrupted, may well carry the market to levels beyond the comprehension of most. Still, a rally fuelled by rotation of hot money can’t be confused with a bull market. Long-term foreign money is far from bullish on India for now. Though global fund managers acknowledge the country’s economic growth prospects are superior to peers in the region, they contend this is not enough to justify the rich share valuations, as reflected in the commentaries of various global macro watchers. Ajay Rajadhyaksha, global chairman of research at Barclays, said in a recent interview that India’s macroeconomic environment over the last 6-9 months has not been terrible, but it’s mediocre relative to where it was 18 months ago. In another interview, Christy Tan, MD and investment strategist, APAC, Franklin Templeton Institute, said for the Indian equity markets to go from strength to strength, there must be stronger economic drivers, and those are missing.Clearly, the discomfort over slower growth and rich valuations is evident. This has been reflected in the actions of knowledgeable investors recently. In the March quarter, most of the large individual investors held back on large stock purchases-a telling sign of the smart money restraint.Similarly, in most recent large bulk deals-where company promoters have sold their stakes-it’s mostly been domestic mutual funds that have been buyers. Most overseas funds have not participated in such deals. It’s not because local fund managers are super bullish. Most of them are forced purchases to deploy the uninterrupted flow of local money into their schemes.So, why are promoters, big individual investors and global investors treading cautiously while domestic bulls charge ahead? It’s the uncertainty over the effect of the US tariffs on the global economy. These days, seasoned money managers prefer to take every quarter as it comes to gauge the impact of delayed fresh investments and dampening CEO confidence. US tariffs are still three to five times higher than they were before Trump returned to power, amplifying the risks of stagflation-a combination of high inflation, stagnant economic growth, and elevated unemployment. And Trump’s pause on tariffs is to end on July 9.The heightened risk perception is also driving a shift in global asset allocation. After years of being overlooked, fixed income is once again central to investor portfolios. Safety is taking precedence over aggressive growth. In India, this shift is playing out through a pivot toward hybrid products. Domestic fund managers are increasingly pushing multi-asset allocation funds and arbitrage-based hybrids over pure equity schemes.As the US grapples with its mounting debt burden, rising Treasury yields, and a weakening dollar, global investors are reassessing risk. Bonds are back in favour, and capital is shifting to safer terrain. Historically, a falling dollar has triggered flows into emerging markets like India and China-but this time, investors are revisiting familiar playbooks more cautiously. That said, short bursts of foreign inflows into markets like India remain possible, as we’re seeing now. But in uncertain times as these, such flows shouldn’t be mistaken for sticky capital. As always, hot money buys the dip and sells the rip.
Mumbai: The stock market often thrives on narratives. When there is limited hard evidence to sell a story in the market, a narrative takes root, giving investors clarity and conviction to make sense of ongoing events. In India, as equities claw their way out of six punishing months, a new narrative that’s gaining ground is: the recent market decline was merely a ‘bull market correction’. For many bruised investors, the interpretation is comforting. But in a world riddled with complexities-from the haze over the economic fallout of US tariffs to the US debt problem-this interpretation risks masking deeper issues in the background.Since April, Donald Trump’s tariff policy has been the biggest driver of the market. After tumbling in response to the US president’s reciprocal tariff announcement in early April, the market has seen a relief rally after the US paused the tariffs for 90 days and initiated negotiations with China. The rebound helped Nifty cross the 25,000 level for the first time in seven months recently, while foreigners are on track to have made the highest monthly purchases so far in 2025 in May, prompting a section of the market to believe that the bull market has picked up from where it left off last year.The recent momentum, if uninterrupted, may well carry the market to levels beyond the comprehension of most. Still, a rally fuelled by rotation of hot money can’t be confused with a bull market. Long-term foreign money is far from bullish on India for now. Though global fund managers acknowledge the country’s economic growth prospects are superior to peers in the region, they contend this is not enough to justify the rich share valuations, as reflected in the commentaries of various global macro watchers. Ajay Rajadhyaksha, global chairman of research at Barclays, said in a recent interview that India’s macroeconomic environment over the last 6-9 months has not been terrible, but it’s mediocre relative to where it was 18 months ago. In another interview, Christy Tan, MD and investment strategist, APAC, Franklin Templeton Institute, said for the Indian equity markets to go from strength to strength, there must be stronger economic drivers, and those are missing.Clearly, the discomfort over slower growth and rich valuations is evident. This has been reflected in the actions of knowledgeable investors recently. In the March quarter, most of the large individual investors held back on large stock purchases-a telling sign of the smart money restraint.Similarly, in most recent large bulk deals-where company promoters have sold their stakes-it’s mostly been domestic mutual funds that have been buyers. Most overseas funds have not participated in such deals. It’s not because local fund managers are super bullish. Most of them are forced purchases to deploy the uninterrupted flow of local money into their schemes.So, why are promoters, big individual investors and global investors treading cautiously while domestic bulls charge ahead? It’s the uncertainty over the effect of the US tariffs on the global economy. These days, seasoned money managers prefer to take every quarter as it comes to gauge the impact of delayed fresh investments and dampening CEO confidence. US tariffs are still three to five times higher than they were before Trump returned to power, amplifying the risks of stagflation-a combination of high inflation, stagnant economic growth, and elevated unemployment. And Trump’s pause on tariffs is to end on July 9.The heightened risk perception is also driving a shift in global asset allocation. After years of being overlooked, fixed income is once again central to investor portfolios. Safety is taking precedence over aggressive growth. In India, this shift is playing out through a pivot toward hybrid products. Domestic fund managers are increasingly pushing multi-asset allocation funds and arbitrage-based hybrids over pure equity schemes.As the US grapples with its mounting debt burden, rising Treasury yields, and a weakening dollar, global investors are reassessing risk. Bonds are back in favour, and capital is shifting to safer terrain. Historically, a falling dollar has triggered flows into emerging markets like India and China-but this time, investors are revisiting familiar playbooks more cautiously. That said, short bursts of foreign inflows into markets like India remain possible, as we’re seeing now. But in uncertain times as these, such flows shouldn’t be mistaken for sticky capital. As always, hot money buys the dip and sells the rip. Economic Times
