Why experts appear cautious about Indian stock market recovery in the near term? EXPLAINED with 5 crucial reasons

After a 16 per cent decline from its peak, frontline index Nifty 50 appears oversold, raising hopes among market participants for an imminent rebound. However, significant risks still loom. While a recovery is inevitable, the much-anticipated rebound is likely to take longer than expected.

Nifty 50 has plunged 4,158 points, or 15.82 per cent, from its peak of 26,277.35, hit on September 27 last year. The Sensex has declined 12,892 points, or 15 per cent, from its peak of 85,978.25.

Nifty stocks such as Tata Motors, Trent and Bajaj Auto have plunged over 30 per cent while stocks in Nifty 500 index have crashed up to 60 per cent since October.

The cumulative market capitalisation of the BSE-listed firms has dropped to nearly ₹384 lakh crore from ₹478 lakh crore on September 27, making investors poorer by about ₹94 lakh crore in a little over five months.

Is the Indian stock market recovery near?

Some experts suggest that the Indian market may be entering a bear phase, with only a slim chance of recovery in the near term.

An index is said to be in a bear phase if it falls more than 20 per cent. Notably, Nifty 500 index, which represents India’s top 500 companies based on full market capitalisation and average daily turnover, is down 19 per cent from its peak of 24,573.

Experts highlight the following five key factors that indicate that the Indian stock market recovery could be delayed:

1. Q4 numbers could be on a softer side

Weak earnings of India Inc. have been one of the biggest reasons for the Indian stock market’s sharp decline over the last five months.

Experts believe that after three consecutive quarters of disappointing earnings, Indian companies may also deliver weaker results in the March quarter (Q4). This expectation is driven by the slowdown in credit growth among Indian banks during the quarter.

Reserve Bank of India data highlighted that bank credit and deposits witnessed deceleration sequentially during the October-December quarter.

Bank credit growth on a year-on-year basis decelerated to 11.8 per cent in December 2024 from 12.6 per cent in September 2024, while aggregate deposits increased at a marginally lower pace, at 11 per cent, compared to 11.7 per cent growth in the July-September period.

“The market expects weak Q4 results in FY25, as there is a buzz about Indian banks’ declining credit growth. If true, it signals that Indian companies’ capex is stagnating or going southward. As the Q3 results in 2025 were not so impressive, and the upcoming results are also expected to disappoint markets, bulls are hesitant to take on bears in a current stock market crash,” said Sandeep Pandey, MD at Basav Capital Advisory.

2. Donald Trump’s tariff policies

US President Donald Trump’s tariff policies will have a negative impact on the global economy. Trump’s 25 per cent tariffs on Mexico and Canada will come into effect on Tuesday, March 4.

He also said the US would double tax on goods from China to 20 per cent, from the 10 per cent announced in February, amid renewed concerns a trade war may push up inflation and hinder growth.

Canada and China have also announced reciprocal tariffs on the US.

“If Trump’s tariff policy continues like this and soon starts impacting other countries, it will be bad for global trade and the global economy. India will not be spared,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

3. Hawkish US Fed

Trump’s policies may drive inflation higher in the US which could make the Federal Reserve hawkish, dealing a blow to already fragile market sentiment.

“Tariffs will soon raise inflation in the US, and the Fed can turn hawkish. The US stock market, which is now priced to perfection, can suffer a severe correction, even a crash. This outcome, which Trump abhors, can tame him and bring about some sanity and balance in his policies,” said Vijayakumar.

In the near term, there are no chances of a rebound in the Indian market even though valuations are fair. Investors should remain cautious and wait to see how the scenario unfolds,” Vijayakumar said.

4. Weather risks

India Meteorological Department (IMD) has warned India that it could see one of the warmest March months on record.

A Reuters report said higher temperatures could reduce wheat yields for the fourth straight year, trimming overall production, which could force the government to lower or remove the 40 per cent import tax.

Unpredictable weather can significantly influence Indian stock market sentiment due to agricultural and supply-chain disruptions, higher inflation and economic growth slowdown.

5. Slowdown in Indian economic growth

India witnessed a 6.2 per cent growth in its December quarter GDP (gross domestic product) was the slowest since Q4FY23, barring the previous quarter (Q2), when it recorded 5.6 per cent.

The National Statistical Office (NSO) expects the Indian economy to grow by 6.5 per cent in FY25.

Signs of strong growth could cheer the market. However, a growth rate on expected lines may not act as a catalyst for the market.

“While the latest growth numbers display signs of revival and a sequential pick up in the activity, the growth prospects in the near term hinge on the ongoing geopolitical and economic issues,” said Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group.

“With the tariff wars and restrictions on trade, the sustenance of elevated growth rate remains a challenge. However, despite these challenges, India’s growth prospects remain encouraging with IMF maintaining 6.5 per cent growth for India over the next two years,” Hajra said.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.