The newly declared India-Pakistan ceasefire has caused a major relief—not only to geopolitical analysts, but also to financial markets. Financial analysts were concerned that a prolonged war would upset investor sentiment and damage the economy. Thankfully, such a situation has been avoided, and the attention now goes to what is in store for investors.
Geopolitical Stability Reinforces Market Resilience
Despite escalating tensions over the past few weeks, the Indian equity market has shown remarkable resilience. This can be primarily driven by enduring Foreign Institutional Investor (FII) interest, supported by positive global macroeconomic fundamentals. Since the return of Donald Trump to the American presidency, the dollar index had risen to 111 in mid-January 2025, resulting in a sharp initiation of flows into U.S. equities and bonds. This rise created brutal FII flows out of emerging markets, including India.
In January alone, India has seen an FII outflow worth ₹78,027 crores. But as the dollar index cooled down, FII selling abated—falling to ₹34,574 crores in February and ₹3,973 crores in March. The market witnessed a shift in April, as FIIs turned net buyers, pumping ₹4,223 crores. More significantly, they continued buying for 16 consecutive days, putting together ₹48,533 crores before a May 9 sell-off of ₹3,798 crores due to fears of conflict.
Now that there is a ceasefire, the stage is set for a possible renewal of FII buying.
Weakness in the World, Strength in India
Around the world, large economies are struggling with contraction or stagnation. American GDP fell 0.3% in Q1 of calendar year 2025, and Fed Chairman Jerome Powell has cautioned that “risks of higher unemployment and higher inflation have risen.” China, weighed down by retaliatory American tariffs, won’t likely increase more than 4%. Europe and emerging economies are also wrestling with weak growth and increasing expenses.
Against this background, India is the standout. With over 6% projected GDP growth, along with a 15% anticipated increase in corporate profits and a downtrend in inflation, the Indian economy presents a relatively positive picture. The Reserve Bank of India’s decision to trigger a rate-cut cycle has further improved sentiment.
Large Caps and SIPs to Drive the Rally
With FIIs having a penchant for large-cap stocks, this space is likely to head the next leg of the rally. April’s historical Systematic Investment Plan (SIP) inflows of ₹26,632 crores are another solid tailwind. But rising SIP stoppages are a worry. As the article suggests, “Investors are making a big mistake by halting SIPs. The sooner they undo it, the better.”
Among the most promising largecaps are financials such as ICICI Bank, HDFC Bank, and Chola Finance; auto leaders such as M&M and Eicher Motors; pharma giants such as Sun Pharma, Dr Reddy’s, and Cipla; and industrial leaders such as L&T and ABB. Digital plays such as Eternal and Paytm, and consumer darlings such as Titan and Pidilite, also have strong prospects. Largecap IT seems to have bottomed, and midcap tech players such as Coforge and Persistent are likely to shine.
Outlook: Stability Breeds Optimism
With ceasefire relaxing and macro numbers in sync, the Indian market can potentially see a sustained rally. But investor discipline and long-term faith—especially through SIPs—will be vital to realizing the full power of this rally.
