The first half of the financial year FY26 has been good for financial and commodity markets in general. Despite elevated geopolitical concerns, renewed trade war, slowing growth in major economies and emerging deflationary pressures, stock market, crypto assets, and precious metals, and industrial metals performed rather well. Energy and soft commodity prices were lower, indicating good price control. The global central bankers accordingly remained on the easing path.
India however was an outlier in the global context. Indian equities, currency and bond markets were one of the worst performers globally. South Koren equities were the best performing equities in 1HFY26. Chinese and German equities were other notable outperformers. Equity indices of the US, Japan, and the UK also recorded strong gains.
The most notable feature of global markets was the sharp rally in precious metal. The central bankers across emerging markets accelerated their gold accumulation, in view of the geopolitical developments and trade tensions. Silver also joined the rally in the past few months.
India performance – 1HFY26
Indian markets were one of the worst performers globally; sharply underperforming the peers. A short war with Pakistan, several punitive actions (tantamounting to virtual economic sanctions) by the US, slowing earnings growth amidst lagging consumer and investment demand, and persistent selling by the foreign investors weighed heavily on Indian equities and INR. The bond market was also sluggish, with the yield curve steepening. The efforts to stimulate demand by allowing income-tax and GST concessions have so far not yielded the desired results. Regulatory measures to curb excessive speculation in the market impacted overall volumes and level of activity.
The key highlights of the India market performance could be listed as follows:
· The benchmark Nifty50 gained 4.6% during 1HFY26; while the Midcap (+9.4%) and Small Cap (+9.1%) did much better. Consequently, overall market breadth was positive.
· Most of the market gains came in 1QFY26, prior to US penal tariffs coming into effect from July 2025. However, four out of six months yielded positive results.
· The total market capitalization of the NSE is higher by ~9.2%; much more than gains in the benchmark indices – implying that stronger gains have occurred in the broader market.
· PSU Banks, Metals and Consumer discretionary, were the top outperforming sector. Media, IT Services, pharma, Realty, FMCG, and private banks were notable underperformers.
· Institutional flows to the secondary equity markets were positive for all six months. 1HFY26 witnessed a total flow of ~INR3154bn, despite net FPI outflow of ~Rs684bn. The correlation of institutional flows with Nifty returns was average (~56%).
· The bond and currency markets were particularly weak in the 1HFY26. INR lost materially against most major currencies, e.g., GBPINR (-10%), EURINR (-14.6%), JPYINR (-9%) and USDINR (-3.6%). Benchmark yields are higher by 1.5%, despite 75bps cut by RBI and strict control over fiscal deficit. Lending and deposit rates were lower by ~50bps. Call rates are lower by 50-75bps.
· The overall Indian yield curve shifted higher and steepened. Sharply.
· The economic growth for FY26 is expected to remain flat at 6.5% (same as FY25). Fiscal balance is expected to be better with FY26BE fiscal deficit projected at 4.4% (vs FY25RE at 4.8%).
· CPI inflation has eased significantly, averaging below 2% in the 2QFY26, much below the RBI tolerance band. Though RBI expects the inflation to pick up in 4QFY26, professional forecasters are predicting it to stay lower than 4%.
· Corporate performance in 1QFY26 has been slightly better than the modest estimates, but signs of long-term earning trajectory slowing down are conspicuous.
