IGI Logo

Indian equity markets have remained broadly range bound for nearly eighteen months, even as global markets experienced a robust bull run. Over the past six months, however, several of these headwinds have eased meaningfully.

Corporate earnings have shown strong momentum, with Nifty 500 profits rising 16% year on year in Q3 FY26, an eight-quarter high and among the strongest reporting seasons in recent years.

Sorbh Gupta, Head-Equity, Bajaj Finserv Asset Management Limited, said,” Corporate earnings momentum has strengthened meaningfully over the past few quarters. The latest reporting sea

son reflects a broad-based recovery in profitability, which provides a more supportive foundation for equity markets going forward.”

At the same time, credit growth has returned to double digits, reflecting an improvement in demand and liquidity availability, while consumption indicators supported by GST cuts have begun to recover. The Reserve Bank of India’s cumulative 125 bps rate cuts, along with liquidity infusion, have also helped lower borrowing costs for companies and consumers.

However, new uncertainties have also emerged in 2026 that have contributed to market volatility. The rapid proliferation of artificial intelligence globally has raised concerns about potential short-term impacts on Indian IT services demand and overall job creation, which has been reflected in the recent underperformance of the IT sector.

“Technological transitions such as artificial intelligence often create periods of uncertainty for traditional service models. However, Indian IT companies have historically demonstrated the ability to adapt to such shifts, and we believe the sector will gradually reposition itself as the new technology cycle evolves,” he added.

Geopolitical tensions in the Middle East have also heightened crude oil risks for India, which imports around 85% of its crude requirement. Notably, nearly 40–50% of these imports transit through the Strait of Hormuz, making supply routes vulnerable in the event of an escalation in the region.

A prolonged conflict could lead to higher inflation, pressure on the rupee, margin pressures for sectors such as aviation, paints, chemicals and oil marketing companies, and potential FPI outflows. However, India’s strong foreign exchange reserves and strategic petroleum buffers provide an important cushion against external shocks.

“While global developments may continue to introduce bouts of volatility, India’s structural growth drivers remain firmly in place. As earnings visibility improves and domestic demand strengthens, disciplined investors are likely to benefit from staying invested through market cycles,” Sorbh explained.

Meanwhile, the Fixed Income markets began the month under pressure following the Union Budget and the Monetary Policy Committee meeting. Concerns around persistent geopolitical tensions, and sustained FPI outflows weighed on market sentiment. As a result, the rupee slipped to a record low during this period, while bond yields, particularly at the long and ultra long end of the curve, moved sharply higher.

However, market sentiment saw a brief recovery following the announcement of the India–US trade deal, which helped stabilise FPI flows and supported an appreciation in the rupee. Domestic developments also played a supportive role. The revamp of the CPI series to a base year of 2024 reaffirmed a benign core inflation trend, strengthening expectations of an extended RBI policy pause.

“The revamp of the CPI series reinforces the view that underlying inflation pressures remain contained. This strengthens the case for a stable policy environment as the RBI continues to focus on the transmission of earlier rate cuts,” said Siddharth Chaudhary, Head-Fixed Income, Bajaj Finserv Asset Management Limited.

However, the recovery proved short lived as the US–Iran conflict intensified. Crude oil prices rose sharply, the rupee gave back some of its gains, and the yield curve steepened once again, particularly at the ultra-long end where selling pressure became more pronounced.

Looking ahead, the direction of fixed income markets will depend largely on geopolitical developments. A prolonged or broadening conflict could keep crude prices volatile and influence inflation expectations, the currency, external balances, and long tenor bond yields.

Elaborating further, Siddharth said that within the current environment, the 3–7-year segment of the curve continues to offer an attractive balance of carry and visibility. While the long end offers higher yields, it remains more sensitive to crude oil movements and currency volatility.

Above views are of the author and not of the website kindly read disclaimer