CIO Speak: India markets: Prognosis at the halfway mark

H1 FY26 (Apr–Sept 2025) witnessed a fair amount of turbulence, driven by global uncertainty and domestic political events. As India moves into the second half of FY26, the story remains that of cautious optimism, supported by flows and structure. The country is now looking relatively cheaper compared to select global markets and is well-positioned to attract Foreign Institutional Investors (FIIs). Signs of a shift are evident in the form of an uptick in FII inflows and a built up in long positions. The October 2025 series, for instance, delivered a sharp FII long build-up, fueling the 300+ point Nifty rally. Further it is expected that FIIs will continue to hold a meaningful long base, implying that dips are likely to attract renewed accumulation. The current market outlook can be best understood through five dominant themes shaping market behavior.

Highlights

• Domestic liquidity continues to act as a strong pillar of India’s bull market and is likely to remain resilient in the near term. However, for meaningful incremental upside, FIIs will need to return. We could see this happening possibly from Q3–Q4 FY26, as global rates peak, earnings broaden, and valuations become relatively compelling.
• Near-term softness unlikely to alter the medium-term upward earnings trajectory.
• Primary markets, especially the IPO market, have been busy in Q1 FY26 with a 7x1 surge in promoter stake sales and a pickup in IPO activity despite muted secondary market sentiment.
• Gold and silver have emerged as the standout outperformer, gaining nearly 60% and 66% YTD due to their characteristic as a hedge amidst geopolitical uncertainty, increasing risk-off sentiment among global investors, and persistent central bank buying.