Stock Market Outlook: Indian equity markets are likely to remain range-bound in the near term, with crude oil emerging as the single most critical trigger, according to Manish Sonthalia, Chief Investment Officer at Emkay Investment Managers.
Speaking to ET NOW, Sonthalia said that volatile crude prices and geopolitical uncertainty in West Asia could dictate market direction, even as investors weigh earnings risks and valuation concerns.
"The biggest variable currently is oil," Sonthalia said, pointing out that despite hopes of a ceasefire, "the diplomatic settlement has not yet fully played out." He noted that crude has already seen elevated levels, adding, "we have seen $125 on the crude… currently we are hovering around $116." According to him, markets have largely priced in the negatives at these levels, but the risk of further escalation remains significant.
Sonthalia noted that supply disruptions could intensify if the situation persists. "If these embargoes still remain in West Asia, inventories are going to reach stress levels in the month of June," he said, adding that a spike in oil prices could follow. "That's the moving part currently. Nothing else matters… markets could swing either way based on whether we see a diplomatic settlement or a military escalation."
On the outlook for equities, Sonthalia expects limited upside in the near term. "Markets will be very range-bound… maybe between 22,000 and 25,000, difficult for the markets to cross 25,000," he said.
Turning to earnings, Sonthalia flagged rising risks to FY27 projections due to inflationary pressures and supply chain disruptions. "If this embargo doesn't end very soon, then FY27 numbers are going to be cut," he said. While current estimates suggest earnings growth of 12-13 per cent, he noted that "we still believe 11-12 per cent is doable" for now, but said that this could "change very rapidly on the negative side" if crude prices rise further.
On valuations, Sonthalia noted that Indian markets are not particularly cheap. "We are currently trading at around 19.5 times FY27 earnings… it's not very cheap for a 10-12 per cent growth environment," he said, though he reiterated that 18 times acts as a floor, aligning with the 22,000 level on the Nifty.
Foreign investor flows are also unlikely to provide support in the near term, he said. "I will not really build in any expectation of FII flows… dollar returns are not very great for India," citing concerns around currency depreciation, fiscal pressures, and current account deficits.