Mkt outlook for FY27 remains optimistic once geopolitical tensions ease: Analysts

The outlook for Indian markets in the next fiscal year remains structurally optimistic once geopolitical tensions subside and crude oil prices stabilise, analysts said, even as domestic equities ended FY26 on a bearish note, with Sensex plunging 7 per cent.

In 2025-26, the BSE benchmark plunged 5,467.37 points, or 7 per cent, and the NSE Nifty dropped 1,187.95 points, or 5 per cent.

The year was dominated by global macro uncertainty, persistent geopolitical tensions, elevated crude prices, and aggressive FII (Foreign Institutional Investors) outflows, which collectively capped upside momentum, an expert said.

Markets have been reeling under the immense pressure ever since the West Asia conflict began, creating chaos, rattling energy markets globally and generating a risk-off environment.

This month alone, the BSE benchmark crashed 9,339.64 points, or 11.48 per cent, since the beginning of the West Asia conflict on February 28.

“The current bearish trend is largely externally driven rather than fundamentally broken. Elevated crude oil prices, geopolitical risks in the Middle East, and sustained FII selling have created a risk-off environment. At the same time, stretched valuations at the start of the fiscal year made markets vulnerable to corrections,” Ponmudi R, CEO - Enrich Money, said.

Brent crude, the global oil benchmark, jumped to USD 115 per barrel on Friday’s trading.

“Looking ahead to the next fiscal year, the outlook for Indian markets remains structurally optimistic once the immediate geopolitical dust settles. The first half of FY27 will likely see continued sideways movement and heightened volatility as inflation and interest rate trajectories adjust to the recent energy shock.

“However, robust domestic institutional inflows and a strong corporate earnings pipeline provide a solid floor against further severe downsides, setting the stage for a strong recovery in the latter half of the year,” Santosh Meena, Head of Research at Swastika Investmart Ltd, said.

The current bearish trend in domestic equities is undeniably unsettling, but it represents a predictable reaction to severe macroeconomic shocks rather than a failure of India’s core corporate fundamentals, Meena said.

Foreign investors have pulled out over Rs 1 lakh crore from domestic equities in March, making it the worst monthly outflow, weighed down by escalating tensions in West Asia and a weakening rupee.

On foreign institutional investors, Meena said FIIs are expected to return to Indian equities, but a significant reversal of the recent exodus hinges heavily on the stabilisation of global macroeconomic headwinds.

“For foreign capital to flow back aggressively, there must be a definitive de-escalation of the West Asia conflict, a cooling of Brent crude prices, and a stabilisation of the Indian Rupee against the dollar,” Meena noted.

FY26 has been a tale of two distinct phases for Indian equities, Hariprasad K, Research Analyst and Founder, Livelong Wealth, said.

“The first half reflected strength and optimism, while the closing quarter exposed the market’s vulnerability to global disruptions,” he noted.