A new financial year has begun, but for retail equity investors in India, it doesn’t feel like a fresh start. The portfolios it carried through fiscal year 2027 are under pressure, and the factors that created that pressure are far from dissipating.
The Nifty 50 index fell 5.1% in FY26, its weakest annual performance since FY20. It was the worst performer among 15 major global indices. For retail investors, who embraced stocks aggressively during the post-pandemic rally, the disappointment was even more pronounced — the Nifty’s two-year CAGR was a meager 0.01%.
The increased participation of local investors has amplified the impact. Household ownership in listed stocks rose from 13% in 2015 to 20% in December 2025. With the start of the 2027 financial year, the question is: what should investors do next?
Hit the governor
Even before US-Israel-Iran tensions destabilized global markets, Indian stocks were grappling with excessive valuations, uneven earnings growth, weak domestic demand, and uncertainty over US trade policy. A rise in securities transaction tax (STT) on financial derivatives also dampened sentiment.
India’s vulnerability to global shocks is exacerbated by its heavy dependence – about 85% – on crude oil imports. Brent crude rose to $118.3 a barrel at the end of March amid the war, well above its annual average of $68.7.
The rise in crude oil prices puts pressure on companies’ profit margins. Sectors that rely on crude oil-related inputs, such as paints, packaging and logistics, are facing cost pressures amid weak demand. Airlines, ceramic tiles, oil marketing companies and gas utilities remain particularly vulnerable.
“Rising oil prices are like a ‘rahu kaal’ for our economy,” says Nilesh Shah, MD and CEO, Kotak AMC. “It is pushing inflation higher, widening the current account deficit, weakening the rupee, and putting pressure on corporate profitability. While our macro fundamentals remain strong, they have certainly deteriorated due to higher oil prices.” The rupee fell sharply from 85.6 to the dollar in April 2025 to 94.65 in March 2026, resulting in a large inflow of foreign funds. Global institutions are becoming cautious. Goldman Sachs lowered India’s GDP growth forecast for 2026 from 6.5% to 5.9%.
Despite the correction, stock valuations are not convincing. The Nifty 50’s price-earnings ratio fell by about 14% to about 19.9 times, but is still high compared to its peers. The MSCI Emerging Markets Index trades at about 16.6 times earnings, which implies a premium of about 20% despite the weak earnings outlook in the short term. Mid- and small-cap stocks are trading at high premiums of 56% and 34%, respectively, compared to large-cap stocks, highlighting the risks in broader markets.
“Kangaroo market”
The conflict in West Asia has made for a roller-coaster ride for street investors, with markets reeling from the ever-changing pronouncements of a few world leaders. “Normally, we see bull or bear markets,” says Shah. “This is the first time we have seen a ‘kangaroo market.’ It moves up and down sharply.” “Everything is driven by global events, and those events are often dictated by a group of players,” he says.
Many investors tend to take comfort from past crises. The sharp recovery after the 2008 global financial crisis and the Covid-19 pandemic has created expectations that every downturn will be followed by a rapid recovery. But the background this time is different. “It is too early to say the worst is behind us,” says Kranthi Pathini, director (research) at Wealth Mills Securities. “Geopolitical developments are evolving rapidly, and uncertainty is high.”
High public debt and persistent inflation restrict fiscal and monetary support. Crude oil prices are likely to remain high amid geopolitical turmoil. Poor earnings visibility. As a result, any recovery is likely to be gradual and uneven.
Foreign outflows were another pressure point. After strong inflows in FY21 and FY24, foreign investment institutions remained in steady selling, with FY26 witnessing record outflows of 1.8 trillion pounds. The weaker rupee, geopolitical tensions, their preference for AI-led growth markets, and more attractive valuations in other emerging markets have contributed to this trend. “India is seen as an expensive country, lacking a strong role in AI, and investors have found better opportunities elsewhere,” says Shah. “If geopolitical tensions subside, selling may decline but may not completely reverse.”
Retail business plan
Despite the near-term challenges, the long-term outlook for Indian stocks is sound. The current phase provides an opportunity to selectively aggregate high-quality businesses at more reasonable valuations. “FY27 will be another challenging year,” says Bethenny. “Investors should maintain a long-term horizon, buy quality on dips and have a core portfolio for at least three to five years and a subordinate portfolio, which focuses on trading strategies, including buying on dips and selling on rises, to take advantage of volatility.” “This is a good time to focus on bottom-up investing, companies with reasonable valuations and relatively less disruption from the current crisis,” says Shah.
Even as market volatility continues, some sectors have already begun to emerge from the crisis. “Our first preference was banking and financial services, where valuations are reasonable and the impact is limited. The second sector is cement, which should benefit from infrastructure building and GST changes. The third sector is hotels and hospitals, where domestic demand and resilience support growth,” says Shah. It is believed that one of the main themes will be electrification with increased power generation, reduced dependence on crude oil, and a shift towards electric mobility and clean energy.
At the same time, it warns of sectors vulnerable to crude oil price shocks, including oil marketing companies and companies that rely on petrochemicals such as chemicals, plastics and fertilisers.
India is seen as an expensive country, lacking a strong AI presence, and investors have found better opportunities elsewhere. If geopolitical tensions subside, selling may decline but may not completely reverse.
-Nilesh Shah,Managing Director and CEO of KOTAK AMC
Rules of the Mutual Fund Game
For investors, discipline remains key. Equity allocations should be staggered and kept at neutral levels. Large- and mid-cap funds are expected to outperform small-cap funds over the next 18 to 24 months. The main topics are banking, healthcare, and consumer discretionary. Diversification is just as important. Investors should also consider exposure to alternative investment funds, structured investment products and global equities.
As investors adjust their mutual fund portfolios for FY2027, the focus should not only be on asset allocation but also on identifying sectors and themes that are likely to lead or lag in the evolving market environment. “Domestic-oriented sectors look better, especially discretionary consumption such as passenger vehicles, jewelery retail and hospitals, where core demand continues to hold up well. Cement also looks good with volumes improving and prices supported. Renewable energy remains an attractive structural theme,” says Firoz Aziz, Joint CEO, Anand Rathi Wealth.
“In the financial sector, the bias is more towards PJSCs than larger private banks, and more towards banks than NBFCs, given the relative comfort on asset quality and growth visibility,” he says. “In IT, the absence of negative surprises provides comfort, with larger companies looking more reasonable at valuations. Real estate, fast-moving consumer goods and export-oriented chemicals may face near-term headwinds and weak performance.”
Domestically oriented sectors look better, particularly discretionary consumption such as passenger cars, jewelery retail and hospitals, where demand continues to hold up well.
-Dear Fayrouz,Joint CEO, Anand Rathi Wealth
Formation trends of MFs
“Indian investors have become savvy and are treating mutual funds as a disciplined savings vehicle rather than a tactical investment product,” says Aziz of Anand Rathi Wealth. “This is clearly evident from the AMFI data, where consistent and increasing SIP contributions even during volatile periods indicate a growing preference for long-term wealth creation over short-term market timing.”
As per AMFI data for March, SIP inflows reached record levels of Rs 32,087 crore, marking the seventh consecutive month above the Rs 29,000 crore mark, while FY26 contributions stood at a robust Rs 3.5 lakh crore. Equity inflows remained strong at Rs 40,450 crore, the highest since July 2025, suggesting investors are using market corrections to increase allocations rather than exit.
For long-term investors, orderly asset allocation remains crucial. “A balanced portfolio can include an 80:20 mix between equity and debt, with equity exposure diversified across large-cap, mid-cap and small-cap companies,” says Aziz. Diversifying stocks becomes essential in volatile markets. “Equity investments should follow an ideal mix of market capitalization of 50-55% in large-cap companies, 20-25% in mid-cap companies, and the rest in small-cap companies. This will help investors get through all market cycles smoothly.”
Gold and silver
With gold up 75% in 2025 and silver over 150%, the outlook for precious metals looks more balanced. “While the long-term trend remains constructive, investors should be prepared for consolidation phases, intermittent corrections and higher volatility. The bias remains positive, but returns may be more tactical, requiring disciplined allocation and tiered buying,” says Navneet Damani, senior group vice president and head of research at MOFSL.
Gold and silver are driven by a combination of global macro factors. Conflicts such as those between Israel and Hamas, Russia and Ukraine initially drove demand, but in the absence of new escalation, there has been some profit-taking. Meanwhile, concerns about inflation remain high. “Volatile crude oil prices are a key factor,” says Damani. “Central banks have remained cautious and delayed interest rate cuts. This has kept US bond yields and the dollar relatively strong, limiting any sharp rise in gold.”
Liquidity has been tightened globally. Changes in Japanese policy and their impact on yen carry trade have increased these pressures. However, the broader environment remains supportive of gold. “Stable inflation combined with slower growth increases the risk of stagflation. This is structurally positive for gold,” Damani says. “Domestically, gold is expected to test between ₹1,85,000 to ₹1,90,000 on the upside. For silver, targets have been placed near ₹3,30,000 on the MCX. Overall, the bias remains constructive, but a gradual approach to investment is advised.”
Not every market cycle may be about chasing returns. There are periods in the markets when it is more important to stay invested and survive before they boom again.
@sakshibatra18
