Indian benchmark indices Sensex and Nifty 50 are expected to open higher on Friday, following a rally in global markets as geopolitical tensions and concerns over US President Donald Trump's Greenland tariffs eased. The positive sentiment comes after Asian markets traded higher and US stocks gained overnight as Trump reversed Greenland tariff threats on European allies.

Thursday's Market Performance

On Thursday, the Indian stock market ended higher, snapping its three-session losing streak on signs of easing global geopolitical tensions. The market performance showed strong recovery across both major indices.

"Overall, we expect markets to track global cues, macro indicators and the ongoing quarterly earnings," said Siddhartha Khemka, Head of Research, Wealth Management, Motilal Oswal Financial Services Ltd.

Global Market Indicators

Asian Markets Performance: Asian markets traded higher on Friday, following the overnight rally on Wall Street as geopolitical tensions eased, ahead of the Bank of Japan's interest rate decision.

Hong Kong Hang Seng index futures indicated a higher opening, adding to the positive regional sentiment.

Gift Nifty Signal: Gift Nifty was trading around the 25,380 level, showing a premium of nearly 30 points from the Nifty futures' previous close, indicating a positive start for Indian stock market indices.

US Market and Economic Data

Wall Street Performance: US stock markets ended higher on Thursday after President Donald Trump rescinded Greenland tariff threats on European allies.

Key Stock Movements:

• Meta share price rallied 5.70%
• Tesla stock price jumped 4.20%
• Nvidia shares rose 0.85%
• Microsoft share price gained 1.52%
• Procter & Gamble stock price advanced 2.60%
• Abbott shares plunged 10.00%
• GE Aerospace slipped 7.40%

Economic Indicators

US GDP Growth: The US economy grew faster than initially estimated in the third quarter. US GDP increased at an upwardly revised 4.40% annualized rate, the fastest pace since the third quarter of 2023. Economists had forecast GDP would remain unrevised at a 4.30% pace, compared to the second quarter's 3.80% growth rate.

Inflation and Employment Data:

Japan Inflation: Japan's core consumer inflation slowed in December but stayed above the central bank's 2.00% target. The core consumer price index rose 2.40% in December year-over-year, matching market forecasts and slowing from November's 3.00% gain.

Commodity Markets

Precious Metals: Gold prices rose to an all-time high above $4,960.00 in early trading, on track for a weekly gain of more than 7.00%. Gold rate increased 0.50% to $4,959.39 per ounce, while silver price jumped 0.70% to $96.91, also setting a record high.

Currency and Oil: The US dollar was poised for its biggest weekly drop in a year, with the dollar index at 98.329 after dropping 0.58% in the previous session. Crude oil prices fell approximately 2.00% to a one-week low, with Brent futures declining 1.80% to $64.06 per barrel and US WTI crude falling 2.10% to $59.36 per barrel.

Market volatility has gripped Indian equities as foreign institutional investors continue their selling spree while trade tensions with the US escalate. Vinit Bolinjkar, Head of Research at Ventura, provides insights into the factors driving current market dynamics and sectoral opportunities despite global headwinds.

Key Drivers of Market Volatility

The Indian stock market faces multiple challenges that have contributed to sustained volatility. Foreign institutional investor outflows have emerged as the dominant factor, with FII holdings dropping to a 15-year low near 17%. The scale of selling has been substantial, with FIIs pulling ₹2.00 lakh crore from key sectors including financials and IT, followed by fresh exits of ₹12,000.00 crore in January amid global risk-off sentiment.

Trade tensions have intensified following President Trump's team citing PM Modi's unreturned call, leading to the imposition of 50% tariffs on Indian steel, textiles and electronics. While India continues ongoing talks to address these concerns, the uncertainty continues to weigh on export-oriented sectors.

Additional pressures include muted earnings growth expectations of 8-16% versus the anticipated 20%, elevated input costs with oil above $80 per barrel, and rich valuations with Nifty trading near 24x PE. Corporate-specific challenges such as Reliance facing capex delays and HDFC Bank dealing with net interest margin headwinds have also contributed to market sentiment.

Q3 FY26 Earnings Assessment

Despite the challenging environment, Bolinjkar maintains cautious optimism regarding earnings trends. The Nifty EPS growth projection of 8-16% year-on-year represents the strongest performance in 8 quarters, driven by earnings upgrades after five consecutive quarters of downgrades.

Several factors support this optimistic earnings outlook. The rupee's position at 86 per dollar provides margin benefits for IT and pharmaceutical companies. Festive demand has supported consumption patterns, while infrastructure spending continues to lift industrial sectors. However, risks from potential US economic slowdown and raw material inflation remain key monitoring points.

Banking Sector Outlook

The banking sector presents a mixed but generally positive outlook with credit growth expected at 10-11% across segments. Retail banking is projected to grow at 15%, MSME lending at 12%, and corporate lending at 8%. Net interest margins may find stability through potential CRR cuts, while asset quality metrics show improvement.

Asset quality is expected to peak with Gross Non-Performing Assets ranging between 2.30-2.60%, representing the lowest levels in decades. Public sector banks are positioned to outperform based on loan momentum, with SBI showing 13% growth, supported by government recapitalisation efforts. Private banks continue to excel in return on assets and return on equity metrics.

Sectoral Investment Themes

Bolinjkar identifies several multi-year investment themes aligned with India's 8% GDP growth trajectory, capex cycle expansion, and PLI scheme implementation. The BFSI sector stands to benefit from the credit boom and NBFC revival, while consumption and discretionary spending sectors may gain from rural recovery supported by favorable monsoon conditions and ongoing premiumization trends.

Defence and manufacturing sectors appear attractive due to strong order execution capabilities and the China+1 diversification factor. Green energy presents significant opportunities with India targeting 450 GW renewable capacity by 2030, representing a five-fold increase in solar capacity. Technology, IT, and telecom sectors offer potential through AI adoption, 5G rollout acceleration, and export market recovery.

Disclaimer: This analysis is for educational purposes only. The views expressed are those of individual analysts, not Mint. Investors should consult certified experts before making investment decisions.