SEBI sees resilient India economy supporting markets despite global headwinds
SEBI's annual report says India's strong domestic fundamentals will support markets in 2026-27, but global risks remain elevated.
India's financial markets are expected to draw support from resilient domestic economic fundamentals in the coming fiscal year, even as geopolitical tensions, elevated commodity prices and volatile foreign capital flows pose significant challenges, according to the Securities and Exchange Board of India's (SEBI) Annual Report for 2025-26.
The report notes that the Indian economy demonstrated resilience during 2025-26 despite a difficult global backdrop, underpinned by robust domestic demand, sustained government capital expenditure and a strong services sector. Real GDP growth is estimated at 7.7 per cent for the year, up from 7.1 per cent in the previous fiscal. Private consumption and investment were key growth drivers, contributing 56.7 per cent and 31.9 per cent of nominal GDP, respectively.
Looking ahead, the global environment remains uncertain. The report cites the IMF's projection of 6.5 per cent growth for India in 2026-27, against a global growth estimate of 3.1 per cent. India's relatively strong domestic fundamentals, ongoing fiscal consolidation, improving inflation dynamics, healthier corporate balance sheets and resilient domestic institutional investment are expected to support its outperformance.
However, risks remain. A prolonged Middle East conflict and crude oil prices above USD 100 per barrel could widen the current account deficit and stoke inflationary pressures. Commodity prices are flagged as a key risk, with higher crude prices potentially raising India's import bill. Strategic petroleum reserves, import diversification and targeted fiscal support are seen as essential for maintaining macroeconomic stability.
Indian equities had a difficult 2025-26, with the Nifty 50 and broader indices falling around 14 per cent in US dollar terms. The decline was driven by sustained foreign portfolio investor (FPI) selling, rupee depreciation, valuation concerns, slower earnings growth and the impact of the Middle East conflict. Domestic institutional investors, particularly mutual funds, provided a significant cushion through robust investment flows.
FPI equity outflows from India reached a record USD 19.7 billion during the year. However, SEBI notes that a restructuring of global supply chains could create new investment opportunities for India. A sustained resolution of the Middle East conflict and normalisation of energy prices would be among the most important near-term catalysts for a recovery in foreign flows.
Overall, SEBI's assessment points to a relatively favourable domestic backdrop, but market performance will remain closely tied to the trajectory of global geopolitical risks, energy prices and international capital flows.