Stock markets in India experiencing an initial downturn prior to the upcoming U.S. Federal Reserve policy meeting
Indian equity markets are gearing up for a potentially weak opening on Wednesday, with the GIFT Nifty suggesting a gap down of approximately 60 points. This comes as the broader market delivered weak earnings for Q1 FY26, but trends did not worsen significantly, suggesting a potential recovery from the second half of the fiscal year.
The current forecast for Indian equity markets in FY26, as outlined in Equirus Securities’ annual India Equity Strategy report, is cautiously optimistic but nuanced by short-term valuation risks amid strong long-term structural growth drivers.
According to Equirus Securities, the Indian equity markets are benefiting from long-term growth tailwinds, including India’s nominal GDP growth (~7.1% CAGR over 2015-2025), macroeconomic stability (including Brent crude near $70/bbl, controlled current account deficit, and reform-driven productivity gains), and improving rural demand. These factors underpin a positive medium-to-long-term outlook despite global volatility.
However, the report also acknowledges near-term risks from elevated valuations and earnings downgrades, impacted partly by global factors including monetary tightening and uncertain global trade. The focus of investors has shifted towards the Federal Reserve’s Jackson Hole symposium later this week, with markets expecting rate cuts this year, and Powell's speech being key for the interest rate outlook.
The report reflects a balanced outlook, with Equirus Securities being bullish on large caps and eight sectors—Auto, Capital Markets, Cement, FMCG, Infrastructure, Internet Platforms, NBFCs, and Oil & Gas—while remaining underweight on sectors like Building Materials, Industrials & Defence, Real Estate, Textile, and Logistics due to stretched valuations and earnings headwinds.
The current market environment is also characterised by a strengthening grip of put writers, as evidenced by the Put-Call Ratio rising from 0.85 to 1.11. The 24,900 strike holds the highest put open interest, acting as a solid support base. Meanwhile, put writers are steadily shifting to higher strikes, while call writers are inching upward, signalling a constructive undertone.
The US tech stocks experienced a 1.4% fall overnight, marking the biggest drop in weeks. However, this information is not directly related to the Indian equity markets discussed in the article. Uncertainty around US-India trade negotiations is keeping exporters on edge, but the report from Equirus Securities states that domestic institutional investors absorbing foreign outflows, along with stable inflows via SIPs, are measured as a positive buffer against global uncertainties.
In summary, the Indian equity markets are expected to navigate a path of both opportunity and caution in the coming fiscal year. The focus remains on large caps and eight growth sectors tied to rural/structural recovery, while short-term caution is necessary due to elevated valuations and global monetary policy uncertainty. Despite these challenges, the positive medium-to-long-term outlook is grounded in strong GDP growth and macro stability.
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