The recovery has been uneven and largely driven by short covering and selective buying, even as broader sentiment remains cautious. Foreign institutional investors (FIIs) have continued to stay on the sidelines, pulling out nearly Rs 48,000 crore from Indian equities in April so far.
The sustained FII outflows underline concerns around India’s relative positioning amid global uncertainties, particularly as investors continue to favour markets linked to the AI-driven rally elsewhere.
Analysts point to crude oil prices as a key overhang. Vinod Nair, Head of Research at Geojit Investments, said elevated oil prices are emerging as a major macro concern. “Elevated oil prices are raising concerns around inflation, currency stability, and broader macro balances, thereby weighing on overall sentiment,” he said.
The earnings season has now kicked off, shifting investor focus to company-specific performance. However, the broader market mood remains guarded.
“While the immediate impact on Q4 earnings is expected to be manageable, prolonged Middle East tensions could have more meaningful implications for Q1FY27. Volatility is likely to remain elevated,” Nair added, noting that markets will closely track geopolitical developments alongside earnings quality and management commentary.
Brokerages maintain their caution despite the recovery. BNP Paribas has cut its 2026 Nifty target by 11% to 25,500, citing weaker earnings growth and a moderation in valuation multiples. The brokerage warned that elevated crude prices could strain India’s fiscal and trade balances, potentially forcing tighter government spending and weighing on consumption.While the recent ceasefire offers some near-term relief, it does not fully offset macro risks triggered by higher energy prices. BNP drew parallels with previous periods of oil shocks in 2008, 2011 and 2022, when elevated crude prices had a prolonged impact on economic growth and market performance.
Domestic institutional views, however, remain relatively constructive. HDFC AMC noted that the recent correction has improved valuation comfort in parts of the market, with six out of twelve sectors now trading below their long-term averages.
As of March-end, the Nifty was trading at around 17 times one-year forward earnings, with market cap to GDP at about 127%, suggesting valuations are not excessively stretched following the pullback.
Also read: HDFC Bank, BSE and Tata Motors among top stocks mutual funds bought and sold during March crash
Over the medium to long term, the outlook for Indian equities remains supported by strong domestic growth, healthy corporate profitability and policy support, including tax and GST relief measures. However, near-term risks continue to dominate the narrative.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
