Indian shares log best month in over two years as earnings, valuations temper oil-driven risks

Indian shares partly recovered from March’s steep selloff with gains in April, but Thursday’s decline highlighted lingering fragility as surging oil prices and a weakening rupee hurt sentiment.

The Nifty 50 fell 0.74% to 23,997.55 and the BSE Sensex shed 0.75% to 76,913.50, while the rupee hit a record low after a jump in crude prices and a hawkish U.S. Federal Reserve.

Indian markets will be shut on Friday for a holiday and reopen on Monday, May 4.

Brent crude climbed to about $126 a barrel during the session, a four-year high, after Axios reported the U.S. military was set to brief President Donald Trump on new options against Iran.

The move revived concerns over imported inflation and pressure on India’s external balances, weighing on equities and the rupee.

Still, the Nifty and Sensex rose 7.5% and 6.9% in April, their best monthly performance since December 2023, partly recovering from March’s more than 11% slump.

The mid-month Iran ceasefire, attractive valuations and an earnings season largely free of major negative surprises helped overpower record foreign outflows.

All 16 major sectors logged monthly gains.

The metal index jumped 15.2%, buoyed by global price strength amid supply concerns tied to the Iran situation.

Fast-moving consumer goods advanced 12.2%, with Nestle India surging 24.2% to post its best monthly performance, supported by upbeat earnings and a steady growth outlook.

Adani Enterprises jumped 36.9% and Adani Ports added 26.3% in April after the group sought to dismiss the U.S. Securities and Exchange Commission’s civil fraud case.

The energy index gained 17%, as rising electricity demand and stable coal availability brightened the outlook for power producers.

Financials rose 9.1%, led by HDFC Bank, ICICI Bank and Bajaj Finance on steady earnings.

However, if oil remains elevated and earnings fail to improve, markets could quickly return to concerns over weak growth and stretched valuations, multiple brokerages, including HSBC and J.P. Morgan, said during the month as they cut their year-end Nifty 50 targets.

“Another near-term risk is potential price increases after state election results on May 4, which could also push inflation higher, posing a risk to earnings and market sentiment,” said Mitesh Shah, chief executive officer of Equirus Family Office.

Broader markets outperformed benchmarks in April, with small-caps and mid-caps rising 18.4% and 13.6%, respectively.

“Valuations have cooled meaningfully from September 2024 in broader markets, and earnings have caught up enough in specific pockets, which has improved the attraction for small and mid-caps,” Shah said.