India’s Markets Strong Despite Global Risks: SEBI

The Securities and Exchange Board of India (SEBI) projects that India’s financial markets will find support from robust domestic economic fundamentals into 2026-27. This positive outlook persists despite persistent global challenges, as detailed in its Annual Report 2025-26.

India’s Economic Resilience in 2025-26

India demonstrated significant economic resilience during 2025-26, achieving an estimated real GDP growth of 7.7%. This marks an increase from the 7.1% recorded in the preceding year.

Growth was primarily driven by robust domestic demand, substantial government capital expenditure, and a thriving services sector. Both private consumption and investment were key contributors to the nominal GDP.

For 2026-27, the International Monetary Fund (IMF) projects India’s growth at 6.5%, notably higher than the global average of 3.1%. India’s strong domestic fundamentals, ongoing fiscal consolidation efforts, and improving inflation dynamics are expected to underpin this relative outperformance.

Further support comes from healthier corporate balance sheets and resilient domestic institutional investment. These factors collectively contribute to India’s capacity to navigate an uncertain global environment.

Global Headwinds and Market Performance

Despite the domestic strength, the global environment is anticipated to remain uncertain, posing potential risks. A prolonged conflict in the Middle East and crude oil prices exceeding USD 100 per barrel could widen India’s current account deficit.

These external factors also risk intensifying inflationary pressures within the economy. Indian equities experienced a challenging 2025-26, with the Nifty 50 and broader indices declining by approximately 14% in US dollar terms.

Several factors contributed to this downturn:

Sustained selling by foreign portfolio investors (FPIs).

Rupee depreciation against the US dollar.

Persistent valuation concerns in the market.

Slower earnings growth across various sectors.

The impact of the Middle East conflict on global sentiment.

FPI equity outflows from India reached a record USD 19.7 billion during the year. However, domestic institutional investors, particularly mutual funds, played a crucial role by providing substantial investment flows that helped stabilize the market.

Navigating Future Opportunities and Risks

A global supply chain restructuring could present new investment opportunities for India. A lasting resolution to the Middle East conflict is considered a vital catalyst for a recovery in foreign capital inflows.

Normalization of energy prices is also essential for attracting international capital. Elevated crude prices specifically could increase India’s import bill and exacerbate the current account deficit, posing upside risks to inflation.

Maintaining macroeconomic stability will depend on strategic petroleum reserves. It will also require import diversification strategies.

Targeted fiscal support measures will further contribute to stability. SEBI’s assessment concludes that while the domestic outlook is favorable, market performance will remain closely tied to global geopolitical risks, energy prices, and international capital flows.