The Indian markets ended FY26 on a forgettable note, with benchmark indices logging their worst annual performance since the covid-19 pandemic six years ago. A sharp selloff on the last trading day sealed the weak finish.
The Nifty 50 fell 5% in FY26, while the Sensex declined 7%, reflecting broad-based weakness across sectors, with the West Asia war, a weakening rupee, and sustained foreign outflows weighing on sentiment.
According to Siddarth Bhamre, head – institutional research at Asit C Mehta Investment Intermediate, markets navigated two major shocks this fiscal—tariff concerns and a war—yet have held up relatively well, supported by strong liquidity in the first half of the year.
“However, from here on, the ongoing conflict is unlikely to reverse quickly, with visible damage to the global economy. Caution has set in, triggering fund outflows and challenging India’s macro story. Rising crude prices and supply bottlenecks could push inflation higher, while growth is expected to slow meaningfully,” Bhamre said.
On Monday, the last trading day of the year (Tuesday is a market holiday), the Nifty 50 dropped 2.14% to 22,331, while the Sensex 30 fell 2.22% to 71,947 — taking the Nifty 50’s losses since the start of the Iran-US war to 11.38%.
The selloff was widespread, with the Nifty Smallcap index falling 2.5% and the Nifty Midcap index declining 2.68%. The BSE Marketcap fell by ₹9.73 trillion. All the sectoral indices closed in the red on Monday.
Other Asian markets also fell sharply the same day—Japan’s Nikkei 225 fell 2.79%, South Korea’s Kospi 2.97%, and Hang Seng index 0.87%.
Further, foreign institutional investors (FIIs) have turned sellers amid the rupee’s decline, net selling equities worth ₹1.12 trillion in March, according to the National Securities Depositories Limited. In February, FIIs had net bought ₹17,147 crore.
“A stable currency is critical for foreign investors,” said Christy Mathai, fund manager at Quantum Mutual Fund. “If FIIs target X% returns, a currency depreciation of 4-5% significantly reduces returns.”
On Monday, the rupee, which has depreciated 4.23% against the dollar since the war began, touched ₹94.8. To curb excessive volatility in the currency, the central bank on 27 March directed all banks to limit their net open position in the onshore deliverable market below $100 million per business day.
“The uncertainty around crude and currency makes us cautious despite long-term upside potential for India, and if the situation prolongs, FY27 earnings could be cut further,” Mathai said.
Positioning pressures added to the weakness, with monthly derivatives expiry coinciding with the last trading day of FY26.
Rajesh Palviya, head of fundamental and technical research at Axis Securities, said traders may have cut positions due to tax-adjustments ahead of the new financial year. Notably, the government has increased the STT on futures and options by almost 150%, effective 1 April.
“The upcoming STT hike, which significantly raises derivatives trading costs, is also discouraging short-term and low-margin trades, leading to lower position rollovers,” said Palviya.
Technical indicators underscored the weakness. The Relative Strength Index (RSI) remained below 40, signalling sustained bearish momentum, while the advance-decline ratio stood at just 0.2—implying nearly five stocks fell for every one that rose.
The top sectoral losers in FY26 were BSE Realty index and BSE IT index, which fell 21.1% and 20.9%, respectively. Among gainers, the BSE Metal index rose 20%, followed by the BSE Auto index, which gained 10.6% in the year.
What valuations are looking like
The Nifty 50 trades at 17.3x PE, 7% below its 10-year average of 18.6x, placing it in a historical bounce zone, said Garima Kapoor of Elara Capital in a report dated 30 March. “Outside of extreme disruptions like covid-19, this level usually acted as a floor for valuation,” she added.
Even during the Russia–Ukraine conflict, despite Brent sustaining above $100 per barrel, Nifty multiples bounced back from 10-year rolling averages and hence, “with our base case assuming gradual de-escalation, current valuation provides a favourable entry point, with limited downside”, Kapoor added.
