Indian stock market: Israel-Iran war to India-US trade deal— 5 factors that hold keys to trend reversal on Dalal Street

The Indian stock market has been rangebound for almost a month amid heightened geopolitical tensions, Trump's tariff-related uncertainties and stretched valuations.

While the benchmark Nifty 50 is up about 1 per cent for June so far, it has stayed in the range of 24,470 to 25,200, failing to hold and extend gains.

The domestic market is torn between contrasting triggers, keeping it range-bound.

Key macro tailwinds exist on the domestic front. India's GDP is expected to rise about 6-6.5 per cent in FY26, while inflation could fall below 4 per cent.

RBI Governor Sanjay Malhotra, after the June policy meeting, lowered the CPI (consumer price index)-based inflation estimates for FY26 to 3.7 per cent from 4 per cent projected earlier while maintaining the real GDP growth estimates at 6.5 per cent for the year.

The World Bank expects the Indian economy to grow at 6.3 per cent in FY26. With over 6 per cent growth, India would be the fastest-growing major economy in the world. Moreover, the World Bank expects the Indian economy to grow slightly faster, at 6.5 per cent in FY27 and 6.7 per cent in FY28.

On the other hand, geopolitical tensions, global economic slowdown and uncertainty about US President Donald Trump's tariff policies are the key headwinds for the domestic market.

Even though domestic consumption remains the dominating theme for the Indian economy, the domestic market cannot completely remain immune to global developments.

Five key factors that hold the keys to trend reversal on Dalal Street

Let's take a look at five key factors that hold the keys to trend reversal on Dalal Street:

1. The Israel-Iran war

The end of the Israel-Iran war could significantly influence market sentiment globally. The Indian stock market may break out on the upside after the two warring countries agree to resolve their issues through talks.

"The Nifty, which has been trading within the 24,500-25,000 range for about a month now, is likely to remain within this range in the near term. The upper side of the range will be broken only on news of de-escalation of the Israel-Iran conflict or an abrupt end to the war," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.

Experts at Kotak Institutional Equities believe that the Iran-Israel conflict has raised concerns about India’s hitherto solid macroeconomic position and highlighted the higher geopolitical risks in the new world order.

"The emergence and escalation of the Iran-Israel conflict may have negative consequences for the Indian economy and market, especially as the rich valuations of the Indian market, sectors and stocks leave very little scope for any negative developments," said Kotak.

Experts point out that the Indian stock market has maintained its uptrend despite geopolitical instability. A relief on this front can propel the market to new highs.

“Geopolitical tensions increasingly appear to be the new normal. It began with the Russia-Ukraine conflict, over two years ago, followed by the Israel-Hamas war. In between, there were flare-ups between India and Pakistan, and now tensions are escalating between Israel and Iran. Yet, despite these global headwinds, the Indian stock market has continued its upward trajectory. In a more stable geopolitical environment, the market may soar to unprecedented highs,” said Jaspreet Singh Arora, Chief Investment Officer at Equentis Wealth Advisory Services.

2. India-US trade deal

The US-India trade deal will also be a key factor for the domestic market. India hopes that both countries will finalise a trade deal before Trump’s ‘reciprocal tariffs’ kick in on July 9.

"Before the end of July, a trade deal between India and the US should be finalised. The negotiations are on. Many major nations are expected to finalise their deals by the end of next month. This would be a major trigger for the markets," said Arora.

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3. Upcoming earnings

India Inc.'s Q4 earnings showed signs of revival. Experts believe the Q1FY26 prints will be better due to a fall in inflation and healthy economic growth.

Nifty 50 earnings per share (EPS) grew 4.9 per cent on-year in Q4, against expectations of a decline. Excluding financials, EPS grew 10.5 per cent on-year. About 80 per cent of Nifty companies either beat or posted in-line earnings, as per Axis Securities.

If Q1FY26 earnings exceed expectations, it will help assuage concerns over valuations and drive the markets to new highs.

4. Foreign capital inflow

Signs of a slowdown in the US economy could keep the dollar under pressure, which in turn may trigger fresh foreign capital inflow to the Indian market.

Moreover, experts highlight that FPIs cannot afford to ignore India due to the country's durable economic growth.

"The dollar index should be below 100 for the current financial year. India is far better placed today compared to last year on most parameters, including growth and inflation. FPIs cannot afford to ignore India for a long time," Arora said.

5. Nifty's breakout

Market experts are of the view that Nifty 50 could give a fresh breakout if it breaches the 25,250 mark and sustains above it.

"If Nifty 50 sustains above 25,250 for one week at least, we may see all-time high levels again," said Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers.

Arora expects the Nifty 50 to hover between 28,000 and 29,000 between December and March of the current financial year.

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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, as market conditions can change rapidly, and circumstances may vary.