According to Wise Money, after India's Nifty 50 index hit a historic high on Tuesday, the market took a breather- dropping 1.2% on Wednesday, marking the largest single-day decline since June 4th, which was due to the shock of the Indian Prime Minister Narendra Modi's ruling party being defeated in the elections. The stock price of auto manufacturer Mahindra was the biggest drag on the index, as the company announced on Tuesday that it will reduce the price of one of its SUVs in the next four months.

Previously, after the dust settled from the Indian elections, investors gradually became less worried about policy continuity, which led to accelerated buying by foreign investors and several consecutive days of historic highs in the Indian stock market. Now, investors are digesting the upcoming earnings season and the price cuts of major automakers. In the three trading days ending on Wednesday, the volatility expectation indicators based on option pricing increased by 17%, approaching the highest level in nearly a month.

Indian companies will start reporting earnings from Thursday, with the most important being IT industry leader Tata Consultancy Services Ltd. and HCL Tech. Their comments on business prospects will be closely watched.

Kranthi Bathini, the strategist of WealthMills Securities, said: 'Investors are profiting at higher levels, which may create consolidation before the government budget is announced on July 23rd. After the strong rebound, it is generally expected that the market will take a break.' Modi's government will submit the India Federal Budget on July 23rd. A senior Indian minister previously stated that Modi's new government will submit the Federal Budget for the fiscal year ending in March 2025 on July 23rd.

The decline in India's bond yields may be bullish for the stock market.

India's budget plans may lead to a decline in Indian bond yields. According to Goldman Sachs and the Reserve Bank of India's predictions, the Indian government may further reduce its borrowing from the bond market, which was previously 14.13 trillion rupees in the budget. Goldman Sachs expects the total issuance to decrease by 500 billion rupees, while the Reserve Bank of India expects it to decrease by 600 billion rupees. This will make the market happy because the market has already expected demand to exceed bond supply, and considering the financial needs of two key allies of Indian Prime Minister Narendra Modi, this will be a surprise. If the forecast of a decrease in bond issuance volume comes true, the yield may decrease.

In recent weeks, attracted by India's economic prospects and stable currency, foreign banks have become the largest investors in India's trillion-dollar sovereign bond market. According to data from India Clearing Corporation, foreign banks have bought more than 500 billion rupees (about 6 billion US dollars) of Indian sovereign bonds since June 1st. This scale far exceeds the net inflow of index bonds of about 200 billion rupees during the same period, indicating that global banks, which usually buy bonds as custodians for clients, are also snapping up these bonds for their own accounts, including Deutsche Bank and HSBC Holdings.

In June, JPMorgan included India in its emerging market bond index. In addition, the election results that strengthened political continuity also promoted capital inflows. Nitin Agarwal, Head of India Trading at ANZ Banking Group, said: 'Banks may have reduced their positions before the general elections. After the election results came out, they covered their short positions and began buying. India's macro fundamentals are still strong.'

Data from the Indian Clearing Bank shows that foreign banks have been net buyers of Indian bonds throughout June, except for four days. On Monday, foreign banks bought 31 billion rupees of bonds, marking the sixth consecutive day of net purchases. At the same time, Indian state-owned banks, mutual funds, and private banks were all net sellers of Indian bonds.

Parul Mittal Sinha, head of Standard Chartered Bank's Indian financial market, said that India's inflation rate is showing a downward trend and is expected to have an average inflation rate of 4.5% for the fiscal year ending in March of next year, which provides the possibility of interest rate cuts. He said: 'When global yields start to fall, if the Reserve Bank of India also starts to cut interest rates, the intensity of capital inflows may increase.' 'Capital gains are imminent, and we are very optimistic.'