Operation Sindoor aftermath: Nilesh Shah on 3 factors driving market trajectory

It is a good morning for all of us in India.
Nilesh Shah: Undoubtedly. As an Indian you feel happy that we have responded to the terrorist act of Pakistan. Hopefully, they will learn the lesson and stay away from such activities.

From a market standpoint, is this event risk behind us? If I look at the market, there is hardly any nervousness and the big departure between the earlier attacks and now is that the earlier two attacks injected nervousness and volatility in the market and today markets have ignored what has happened on the geopolitical front.
Nilesh Shah: So, a couple of factors. One, globally most countries, barring some exceptions, are supporting India. I read a WhatsApp message, I do not know how reliable it is, that apparently the US has warned Pakistan to not even think of retaliation. So, the market in its collective wisdom is pricing that this will not be escalated. This will be a limited conflict

Second, it is a flow-driven market. In the context of FPIs, I had several times mentioned that subah ka bhula sham ko ghar laut aayega, that they will be back soon. But yeh toh dopahar ko hi ghar laut aaye. They have returned earlier than expected. It is a flow driven market, their buying along with domestic flows has pulled the market up. Obviously, flows can overcome events. The third and more important point in my opinion is the Indo-UK FTA. This opens up the UK export market for Indian companies. It is a very well-structured deal and maybe the market is ignoring noise based on flows and the fundamentals like Indo-UK FTA.

The FTA technically could be an indicator of which way the final negotiations with the US will also move.
Nilesh Shah: It is always difficult to predict US policies in current circumstances and probably with the UK we have been negotiating for long and the contours of deals with the UK, the US, as well as the EU could be different. But undoubtedly, they are realising India is a win-win combination. Imagine if the US had brought all the software from China, by now they would have carried a huge cyber security risk. But since software is from India, they do not have to worry about bugs, virus, cyber risks, and so on and so forth. The contours will be different. So, I will say, let us try to create a win-win situation like the Indo-UK FTA rather than a one-sided equation which the US-China relationship is showing right now.

Live Events

We had a very engaging conversation on the day the tariffs were announced and it appeared that the world was falling apart, but touchwood, equity markets have ignored all the tariff concerns so much so that the US markets have retraced all their ‘tariff’ losses. While the tariff deals have not been stitched, the equity markets have ignored the concerns. Why is that?
Nilesh Shah: Again, mostly it is FPI flows. We never would have expected that in the event of conflict with Pakistan, FPIs will turn aggressive buyers. While selling, they did not hide their side, while buying also they are not hiding their side, and hence even the limited amount of buying is creating material price impact. The second factor could be the results season so far. Good results come first, bad results come a little later. Keeping that in mind, notwithstanding the fact that 100 odd companies have declared results so far it has come ahead of expectation. There are some companies where results are below expectation, but collectively the entire group of 100 plus companies have delivered results which are ahead of expectation. We should be hitting 1050, 1060 Nifty 50 EPS. This is a good base. The earnings are coming little ahead of expectation. Flows have become stronger with FPIs return. Supply has been restricted. No new IPO, QIP, OFS is right now coming to the market. Put together it is pulling the prices up.