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India’s financial markets have a strong domestic foundation, but geopolitical tensions, elevated crude oil prices and foreign investor outflows remain key risks, the Securities and Exchange Board of India (SEBI) said in its annual report for 2025-26.
The assessment comes after a difficult year for Indian equities, with global uncertainty weighing on market performance despite resilience in the domestic economy.
The Nifty 50 and broader indices declined by around 14% in US dollar terms during 2025-26. Sustained foreign portfolio investor (FPI) selling, rupee depreciation, valuation concerns and slower earnings growth affected Indian markets. The Middle East conflict added to the pressure.
Strong investment flows from domestic institutional investors, particularly mutual funds, helped offset some of the pressure from foreign investors. SEBI said the Indian economy remained resilient during the year, supported by domestic demand, government capital expenditure and the services sector.
Real GDP growth was estimated at 7.7% in 2025-26, compared with 7.1% in the previous year. Private consumption and investment accounted for 56.7% and 31.9% of nominal GDP, respectively.
The International Monetary Fund (IMF) forecast that India’s growth will be at 6.5% for 2026-27, while global growth will be at 3.1%.
According to SEBI, India’s comparatively strong domestic macroeconomic fundamentals, fiscal consolidation, improving inflation dynamics, better health of companies’ balance sheets and robust domestic institutional investment could help India outperform other economies. These factors could help shield India from external shocks.
SEBI identified the Middle East conflict and crude oil prices as important risks to India’s economic outlook. A prolonged conflict could become more challenging if crude oil prices remain above $100 per barrel.
Higher oil prices could increase India’s import bill, widen the current account deficit and add to inflationary pressures.
The regulator said strategic petroleum reserves, diversification of imports and targeted fiscal support would remain important for maintaining macroeconomic stability.
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Foreign investor selling remained a major drag on Indian equities. FPI equity outflows reached a record $19.7 billion during 2025-26.
Meanwhile, SEBI argued that the restructuring of the global supply chain may offer opportunities for India. The continued resolution of the problem in the Middle East region and the normalization of energy prices could help restore foreign investment.
However, the internal economy of the country still remains a strong point for Indian markets. Nevertheless, geopolitical developments, oil prices, and global investment flows will continue to affect the outlook for 2026-27.
