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 $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.
He explained that markets entered the fiscal year on a strong footing, supported by domestic liquidity, steady earnings, and retail participation and indices even scaled record highs towards the end of the calendar year 2025.
“However, the final quarter saw a sharp reversal, driven largely by external shocks. Escalating geopolitical tensions in West Asia, a spike in crude oil prices, and persistent global uncertainty triggered a significant risk-off sentiment,” Hariprasad added.
Looking ahead to the next fiscal, the outlook remains cautiously optimistic, with recovery likely to be earnings-driven rather than sentiment-led, he said.
The BSE benchmark index hit its record high of 86,159.02 on December 1, last year.
Ravi Singh, Chief Research Officer, Master Capital Services Limited, said, “Looking ahead, the outlook remains cautiously positive. If global factors, like crude prices and lower interest rates, ease markets can stabilise and regain momentum. Earnings growth will be the key driver. In the near term, volatility may continue, but over time, the market is likely to find its footing again”.
Echoing a similar sentiment, Ponmudi said, “Going into the next fiscal, expect markets to remain volatile in the near term but gradually transition into a recovery phase, especially once global uncertainties ease and earnings visibility improves”.
Equity benchmark indices Sensex and Nifty ended the last trading session of the 2025-26 fiscal year over 2 per cent lower on Monday. The market capitalisation of BSE-listed companies stood at Rs 4,12,41,172.45 crore on the last trading day of FY26.
