India relies on imports for nearly 90% of its crude oil needs, making it sensitive to rising global oil prices, which typically strain corporate margins, the current account deficit, and the rupee. Generally, the domestic market holds a strong inverse relationship with crude prices. However, recent market trends have deviated from this pattern, with Indian equities showcasing better performance despite crude prices touching to alarming peak of $126. This shift is supported by comfortable valuations, better earnings visibility, and confidence in the strength of the domestic economy. However, sustenance of the bias is highly vulnerable to a persistent rally of crude, which will further impact Q1 and Q2 FY27 corporate earnings.
A key driver behind the market’s strength has been the correction-led valuation reset. Following earlier bouts of volatility, Indian equities entered a more reasonable valuation zone, encouraging investors to re-enter the market with a long-term perspective. The prevailing sentiment suggests that while higher crude prices may delay economic recovery, they are unlikely to derail it. This “delay, not denial” narrative has helped markets absorb external shocks more effectively. India’s one year forward P/E stands at 18.5x, marginally below 5yr average.
Supporting this resilience is the encouraging trend in Q4FY26 earnings and moderation in Middle East war risk. Early reporting companies have delivered marginally better-than-expected results. Notably, 119 companies from the broader Nifty 500 universe recorded a robust 12% YoY growth in net profit—one of the strongest growth rates in recent quarters. This performance has provided a fundamental cushion to equity markets, reinforcing investor confidence.
Sectoral, the earnings momentum of banking and financial services has been in-line with a mixed view due to good credit growth but a fall in NIMs. Metals benefited from rising commodity prices triggered by global supply disruptions. On the other hand, oil marketing and refining companies emerged as laggards, with major players reporting a decline in profitability due to margin pressures linked to volatile crude dynamics.
The recent correction has been utilized to accumulate domestic-oriented sectors where earnings visibility remains strong. Banking continues to be a preferred segment, supported by healthy balance sheets, stable credit growth, and improving risk-reward dynamics, especially in large private sector banks. Capital goods, manufacturing-linked businesses, and select consumer discretionary stocks have also attracted incremental flows, especially from domestic investors, driven by structural growth drivers and robust demand outlook. Consumption based sectors like Auto and FMCG have also done well due to demand in products.
In contrast, the IT sector presents a relatively muted near-term outlook. While valuations have corrected and balance sheets remain strong, growth visibility is constrained by global macroeconomic uncertainty and cautious client spending. As a result, IT is increasingly being viewed as a gradual accumulation theme rather than a near-term outperformer, with stock selection playing a critical role.
Global cues, however, continue to pose challenges. The US Fed’s hawkish stance, keeping rates unchanged while signalling persistent inflation risks, has tempered expectations of rate cuts in 2026. Including chaos on Homruz, depreciation in currencies and constant rise in Japanese yield has implications for global risk and liquidity affecting capital flows into emerging markets like India.
Despite these uncertainties, the broader market outlook remains constructive, albeit within a consolidation phase. With geopolitical risks still unresolved and inflation concerns lingering, markets are expected to remain range-bound in the near term, with the Nifty likely to oscillate between 23,500 and 24,500 levels, with a mixed bias. The risk associated with selling during a rally is particularly pertinent in the short term should the global crisis continue. Return expectations for FY27 have been moderated, with estimates suggesting a potential 8–12% upside from current level, contingent on stabilization in crude prices and easing global uncertainties.
The author Vinod Nair is the Head of Research, Geojit Investments Limited.
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.
