Indian Equity Markets Face Volatility Amid Oil and FPI Challenges in Samvat 2083

As the Hindu New Year Samvat 2083 began with Diwali celebrations, Indian investors are preparing for more market fluctuations following a turbulent previous year. Analysts anticipate that volatility will continue to shape domestic equity markets, influenced by factors such as crude oil price movements, geopolitical uncertainties, and the behavior of foreign portfolio investors (FPIs).

Samvat 2082 turned out to be one of the weakest years for Indian equities in the last 15 years despite ending on a relatively upbeat note. The benchmark indices Nifty 50 and Sensex delivered their largest weekly gains in nearly six years, rising by 8.6 to 8.8 percent. This recovery coincided with a Democratic Party win in the US midterm elections and a partial unwinding of the artificial intelligence (AI) trade, which had been a significant driver of market dynamics.

During this period, Brent crude oil prices softened to $98.3 per barrel by the end of October, while the yield on 10-year US Treasury bonds declined from a multi-year peak of 5.37 percent to 4.86 percent. The US Energy Information Administration (EIA) projects Brent crude to average $84 per barrel by 2027 if Middle Eastern oil production returns to pre-conflict levels by mid-2027. However, the agency cautions that disruptions such as tanker attacks could swiftly alter this forecast.

Market experts suggest that a resolution in ongoing geopolitical conflicts, including the US-Iran tensions and the Russia-Ukraine war, could significantly ease oil prices and boost investor sentiment globally. U R Bhat, cofounder and director of Alphaniti Fintech, noted that a decline in oil prices by 30 to 40 percent would benefit India substantially. He also mentioned that a correction in the previously stretched AI sector valuations might lead to a shift in investment flows favoring Indian markets. Despite these external pressures, domestic indicators such as economic growth rates, Goods and Services Tax (GST) collections, and corporate earnings have remained largely positive.

Bhat emphasized that sustained market gains would depend on either renewed buying interest by foreign portfolio investors or at least a slowdown in their selling activity. In Samvat 2082, foreign investors withdrew a record Rs 4.55 trillion from Indian equities. Domestic institutional investors helped offset this outflow by purchasing Rs 8.55 trillion in shares.

Looking ahead, foreign investors maintain a cautiously optimistic stance for 2027, favoring a long-term positive outlook despite near-term uncertainties. A report from HSBC Private Bank dated November 5 advises a tactical mild underweight position on Indian equities. The report points out that although Indian stocks outperformed many global and regional peers in October, the MSCI India index currently trades at more than twice the price-to-earnings (P/E) ratio of the MSCI Asia ex-Japan index, with potentially slower earnings growth expected. HSBC suggests prioritizing defensive, domestically focused large-cap companies, especially within financial and industrial sectors.

Similarly, Blackrock’s October 26 report recommends above-benchmark exposure to Indian equities for strategic portfolios spanning five years or more. However, it remains neutral on Indian equities from a tactical perspective, citing expensive valuations for large caps compared to regional competitors and varied earnings prospects across the market. Blackrock anticipates a selective investment environment where returns will be increasingly driven by actual earnings performance.

During Samvat 2082, the broader market indices outperformed the key benchmarks. The Sensex and Nifty 50 declined by 4 percent and 3.1 percent, respectively, while midcap and smallcap indices gained 2.1 percent and 4.2 percent. Market analysts view the outlook as uneven, with scenarios ranging from lower oil prices and higher interest rates supporting earnings-led returns, to persistent oil price pressures and a weakening rupee leading to earnings downgrades.

In this context, banks and financial institutions are seen as relatively safer investment options. Investors are advised to exercise caution with midcap and smallcap stocks, which currently trade at high valuations. The Nifty Midcap 150 index holds a P/E ratio around 28 times, and the Smallcap 100 index trades near 34 times, compared to a more reasonable 21 times for the Nifty 50.

Deven Choksey, promoter and managing director of DRChoksey FinServ, expressed a positive outlook on India’s long-term prospects amid global volatility. He highlighted that market corrections might provide opportunities to invest in companies with strong earnings, solid balance sheets, and sustainable demand. Choksey also pointed out India’s growing focus on sectors such as artificial intelligence, data centers, semiconductors, renewable energy, defense technology, and advanced manufacturing as potential drivers of future growth.

With these factors in play, investors should stay attentive to global influences and domestic fundamentals as the new Samvat year unfolds. The interplay of geopolitical events, crude oil price trends, and foreign investment flows will likely continue to shape the trajectory of Indian equity markets.