After a turbulent Samvat 2082, Indian investors should brace for continued uncertainty. Analysts say volatility is expected to remain a key feature of the market in Samvat 2083, which started with Diwali on Sunday.
Domestic equities are likely to remain turbulent in the new Hindu calendar year, with geopolitical crises, crude oil prices and foreign investor flows weighing on markets.
Samvat 2082 saw one of its worst performances in 15 years even as it ended on a high note, with the Nifty 50 and Sensex posting weekly gains of 8.6 to 8.8 per cent — their largest in nearly six years.
This unfolded against the backdrop of a Democratic victory in the US midterm elections and a partial unwinding of the artificial intelligence (AI) trade. Consequently, Brent crude cooled to $98.3 a barrel on Friday, while 10-year US Treasury yields dropped below the 5 per cent mark to 4.86 per cent, down from their multi-year high of 5.37 per cent.
The October outlook from the US Energy Information Administration projects Brent spot averaging $84 in 2027, provided most Middle Eastern production returns to pre-conflict levels by June 2027. The agency made clear this is a conditional forecast, warning that tanker attacks could change the situation overnight.
“A de-escalation of the US-Iran war could bring oil prices down by 30-40 per cent, benefiting India. A resolution of the Russia-Ukraine conflict would further improve global sentiment. Additionally, a correction in stretched AI valuations could trigger an anti-AI trade, potentially redirecting flows towards Indian markets,” said U R Bhat, cofounder and director of Alphaniti Fintech, adding that domestic fundamentals such as economic growth, GST collections, and corporate earnings have remained encouraging so far.
“A sustained rally will also require foreign portfolio investors buying or at least a moderation in their selling,” Bhat said.
Overseas investors pulled out a record Rs 4.55 trillion in Samvat 2082, while domestic institutional investors (DIIs) cushioned the blow with buys totaling Rs 8.55 trillion. The consensus among foreign investors is cautiously positive for 2027, though they remain positive on the long-term outlook.
“We retain a tactical mild underweight stance on Indian equities. Indian equities outperformed global and Asia ex-Japan equities in October. However, MSCI India now trades at more than double the price-to-earnings (P/E) ratio for Asia ex-Japan equities while offering potentially slower earnings growth in 2027, leading to low probability of sustained outperformance,” said a note by HSBC Private Bank on November 5.
MSCI India has a forward P/E of 18.45 times. MSCI’s Asia ex-Japan index is at 8.84 times forward P/E, according to data as on October 30.
“We favour defensive, domestically oriented largecap companies, with financials and industrials remaining preferred sectors,” it said.
A report by Blackrock on October 26 said: “We favour above-benchmark exposure to Indian equities in strategic portfolios over five years and beyond. We are neutral on Indian equities tactically: large-cap valuations still look expensive relative to regional peers, and earnings prospects vary across the market. We expect a selective market, with returns driven increasingly by earnings delivery.”
Samvat 2082 saw benchmark indices underperform broader markets. The Sensex and Nifty 50 declined 4 per cent and 3.1 per cent, respectively, while the Nifty Midcap 100 and Nifty Smallcap 100 indices gained 2.1 per cent and 4.2 per cent.
Analysts told Business Standard that the base case remains uneven, characterised by lower oil prices, higher interest rates, and earnings-led equity returns. The bull case assumes lower inflation and higher profitability from India’s banks and large companies, whereas the bear case sees current high oil prices persisting alongside a weak rupee and earnings downgrades.
Their opinion is that under such scenarios, banks and financials are still the best bets. They are sceptical about midcaps and smallcaps where valuations are high. The Nifty Midcap 150 trades at a P/E multiple of 28x and the Smallcap 100 trades at 34x while the Nifty 50 is attractive at 21x.
Deven Choksey, promoter and managing director of DRChoksey FinServ, said he is positive about India’s long-term prospects amid global uncertainty and market volatility.
“Corrections could offer attractive entry points in companies with resilient earnings, strong balance sheets and intact structural demand,” he said. “India’s investments in AI, data centres, semiconductors, renewable energy, defence technology and advanced manufacturing could create opportunities for globally relevant businesses.”