June is generally a positive month for the Indian benchmark Nifty 50 index. In six of 10 last occasions over the past decade, the index has delivered a positive return. Notably, in the last three years, June has generated gains of over 3% each. In fact, barring June 2022, when Nifty fell 4.85%, the index has consistently ended the month in the green, suggesting a supportive seasonal trend.
This time, the macro and geopolitical environment is different. The conflict between the US and Iran, which is now in its fourth month, has led to an energy shock. The closure of the Strait of Hormuz, a key passage for global oil and gas needs, has put crude oil prices on a boil. Widely tracked Brent futures are currently at $95 per barrel, much higher than the $60 per barrel mark before the onset of conflict on 28 February. During the height of the Middle East crisis, the oil futures had jumped to above $120 per barrel.
High oil prices are negative for India’s current account deficits and balance of payments, fiscal deficit, growth and inflation, and the impact of crude oil prices is non-linear.
What could drive markets in June?
Therefore, crude oil trajectory holds the key for dictating stock market trend in June. As we enter June, markets around the world are celebrating a 19% monthly decline in crude prices with the hope that prices might settle in the range of $ 70-$ 75 by the end of the month amid reports of US and Iran making efforts to strike a peace deal.
Sunny Agrawal, Head of Fundamental Research at SBI Securities, said that if the crude oil prices go back to $80-85/bbl, then definitely it will be positive for domestic equities, as this will take off pressure from the Indian rupee and the narrative will turn favourable for the Indian economy.
Kotak Institutional Equities in its base-case scenario assumes an end to the West Asia war over the next few days or weeks, with a gradual reopening of the Strait of Hormuz after that. But even then, the market recovery could be gradual.
Analysts expect a bumpy June quarter earnings despite a decent Q4. In Q4FY26, the net income of the Nifty 50 index grew 6.6%, versus KIE’s expectation of 2.2% growth and net income of KIE Coverage Universe grew 14%, versus the expectation of 7.3% increase.
KIE said that it does not rule out earnings downgrades in the domestic consumption sectors from longer-than-expected disruption to global oil and gas supplies and higher-than-expected input prices.
Karan Aggarwal, Co-founder & CIO, Ametra PMS, also highlighted that since high crude prices have sustained higher for more than 90 days, markets would gradually recognise misplaced euphoria, with profitability across midcap and small cap stocks expected to take a hit of 200-300 bps. With yields hovering around 7%, margin stress in the financial sector might continue into next quarter, he said.
Another important piece of the puzzle is the foreign portfolio investors (FPIs). Their relentless selling of Indian stocks in favour of markets with AI-related opportunities is creating pressure for Dalal Street and the rupee. India recently lost its ranking in the global market cap board, slipping two slots in a matter of a week, pipped by Taiwan and South Korea.
Expecting this trend to end soon, Aggarwal said, “Going by historical precedents, a heady cocktail of valuations, unreasonable earnings expectations, high concentration and low liquidity has taken AI trade very near to a catastrophic climax. Technical indicators indicate that outperformance of US and developed Asian markets over India is in a historical reversal zone. We expect the AI bubble to pop in the next few months, which would trigger the final phase of FII selling and the onset of a multi-year buying phase by the end of 2026.”
On top of that, Indian companies are performing well on fundamentals and likely to ride out the high oil prices without too much damage, believes Vikas Gupta, CEO & Strategist, Omniscience Capital. “This forces FPIs to look deeply at India and consider it as a diversification against an AI Bubble. Because the Indian earnings are more broad-based across the economic spectrum.”
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
