The Securities and Exchange Board of India (SEBI), in its Annual Report 2025-26, has assessed that India’s financial markets are likely to receive continued support from strong domestic economic fundamentals during 2026-27. However, geopolitical tensions, elevated crude oil prices and fluctuations in foreign investment flows remain key risks for market stability.
India’s economy demonstrated resilience during 2025-26 despite challenging global conditions. Real GDP growth was estimated at 7.7%, compared with 7.1% in the previous year. Strong domestic consumption, government-led capital expenditure and sustained activity in the services sector remained important contributors to economic growth. Private consumption and investment accounted for 56.7% and 31.9% of nominal GDP, respectively.
SEBI noted that India is expected to maintain comparatively strong growth in 2026-27. The International Monetary Fund (IMF) has projected India’s growth at 6.5%, against expected global growth of 3.1%. Fiscal consolidation, moderating inflation, healthier corporate balance sheets and sustained participation by domestic institutional investors could help support Indian markets.
Despite these domestic strengths, external risks remain significant. A prolonged conflict in the Middle East and crude oil prices exceeding USD 100 per barrel could increase inflationary pressures and widen India’s current account deficit by raising the country’s import costs.
Indian equities experienced considerable pressure during 2025-26. The Nifty 50 and broader market indices declined by around 14% in US dollar terms, amid continued foreign portfolio investor selling, rupee depreciation, valuation concerns, slower earnings growth and geopolitical uncertainty.
Foreign portfolio investors recorded equity outflows of approximately USD 19.7 billion, marking a record level during the year. Domestic institutional investors, particularly mutual funds, helped limit the impact of foreign outflows through strong investment activity.
SEBI also highlighted potential opportunities arising from the restructuring of global supply chains. India could benefit from changing international production and investment patterns if global conditions become more stable. A sustained easing of Middle East tensions and a moderation in energy prices could provide important support for a revival in foreign investment flows.
Crude oil remains a critical factor for India’s macroeconomic stability. A sustained increase in oil prices could raise the import bill, put pressure on the current account balance and create additional inflationary risks. Strategic petroleum reserves, diversification of energy imports and targeted fiscal measures are expected to remain important policy tools.
Overall, SEBI’s assessment indicates that strong domestic fundamentals may provide a supportive base for Indian financial markets in 2026-27, while market performance will continue to depend significantly on global geopolitical developments, commodity prices, currency movements and foreign capital flows. CASansaar