The Indian equity market is expected to open cautiously due to a recent escalation of tensions in West Asia. Analysts have pointed to significant selling by foreign portfolio investors (FPIs) and a weakening rupee as factors dampening market sentiment.
Ponmudi R, CEO of Enrich Money, noted that investor sentiment remains apprehensive and sensitive to geopolitical events. The ongoing U.S.–Iran standoff, a rebound in crude oil prices, and persistent outflows of foreign funds are all contributing to the current market narrative. “While energy prices are still below their recent peaks, any further escalation in regional tensions or continued foreign selling could diminish risk appetite and heighten downside risks. Conversely, meaningful diplomatic progress could enhance sentiment, allowing for a recovery in risk assets and providing clearer visibility for markets navigating an uncertain global environment,” he said.
As of now, the Nifty is indicated to open down by over 200 points at 23,245.
Valuations Provide Support Amid Near-Term Risks
Despite these uncertainties, analysts perceive some stability in the market, driven by strong macroeconomic indicators such as better-than-anticipated industrial production, auto sales, and fiscal deficit figures. Experts argue that valuations have become relatively attractive. According to Motilal Oswal Financial, the Nifty is currently trading at a 12-month forward price-to-earnings (P/E) ratio of 18.6 times, which is an 11% discount to its long-term average (LPA) of 21 times. The price-to-book (P/B) ratio stands at 2.7 times, representing a 5% discount to its historical average of 2.9 times. The trailing 12-month P/E ratio for the Nifty is at 21.5 times, below its LPA of 23.2 times, indicating a 7% discount, while the trailing P/B ratio of 3 times is below the historical average of 3.2 times, showing a 4% discount.
“The Nifty-50 recorded a modest 5% earnings per share (EPS) growth in FY26, following a 16%+ compounded annual growth rate (CAGR) during FY20-25. Given India’s poor performance in FY26 and the record outflows from foreign institutional investors (FIIs), a favorable base has likely been established for Indian equities. Nonetheless, in the near term, the market will be affected by volatile developments stemming from the West Asian crisis. Higher commodity prices will be crucial, as prolonged increases may impact India’s macroeconomic indicators and result in a tighter monetary policy,” the domestic brokerage added.
Fiscal Position and Industrial Growth Remain Affirmative
Aditi Nayar, Chief Economist at ICRA Ltd, commented that the Government of India’s fiscal deficit was Rs. 0.4 trillion below the Revised Estimate for FY2026, aided by a Rs. 0.6 trillion expenditure cut, more than offsetting a marginal miss in receipts. This resulted in a fiscal deficit of 4.4% of GDP for FY2026, in line with fiscal targets, despite downward revisions in nominal GDP figures.
“Notably, inflows from savings deposits and certificates, as well as the Public Provident Fund (PPF), exceeded the Revised Estimates by Rs. 1.0 trillion, surpassing expectations. This led to an increase in the Government’s cash balance, contrary to the anticipated Rs. 457 billion drawdown as per the Revised Estimates. Such circumstances are expected to cushion the Government’s fiscal position in FY2027 and prevent any fiscal slippage from corresponding increases in market borrowings,” she added.
Regarding industrial production data, Nayar explained that the new series incorporates multiple adjustments including revisions to the item basket, changes in sectoral weights, and an increase in the number of reporting factories. Industrial output reportedly grew at a faster pace in FY2024 and FY2025 than previously estimated, particularly in the manufacturing sector. “This may lead to upward revisions in GDP estimates for these years when the revised data is released later this week,” she noted.
Derivatives Indicate Cautious Market Sentiment
From a derivatives standpoint, the market sentiment appears cautious. Dhupesh Dhameja, a Derivatives Research Analyst at SAMCO Securities, indicated that the put-call ratio stands at 0.49, suggesting an oversold derivatives structure and significant call-oriented positioning. “Considerable call open interest is focused in the 23,500–23,600 strike range, establishing a solid resistance band. Meanwhile, put writers are actively defending the 23,000–23,200 range, creating an important support base. The Max Pain level is located near 23,500,” he added.
Most equities across the Asia-Pacific region have shown declines in early trading on Tuesday.
Published on June 2, 2026.
