Indian stocks are projected to experience their first annual decline in over a decade, according to a Reuters poll of equity analysts. The Nifty 50 is currently down about 8.5% this year and is forecast to rise only around 8.7% to 26,000 at end-2026 from Tuesday's close, as reported by Reuters. This would result in an annual decline of about 0.5%, marking the first yearly loss since 2015. The BSE Sensex was projected to reach 84,150 at end-2026 and 87,895 at mid-2027. However, Bank of America's Candace Browning has set a more optimistic year-end target of 26,200 for the Nifty, implying about a 10% return in local currency terms from current levels, though this would still result in flat returns for the year overall.
Foreign investors have sold more than $23 billion of their holdings in Indian equities so far in 2026, surpassing last year's record outflows, according to Reuters. However, Himanshu Srivastava from Morningstar India believes these outflows should not be interpreted as a loss of confidence in India's long-term growth story. The March 2026 quarter saw foreign investors withdraw nearly $5 billion from India-focused offshore funds and ETFs, driven by global risk aversion, elevated US yields, geopolitical uncertainties, and stretched valuations in certain Indian market segments. As per Srivastava, foreign investors are becoming more valuation-conscious rather than structurally bearish on India, with actively managed India-focused offshore funds still accounting for nearly 70% of the category's assets. However, Bank of America's Candace Browning notes that global investors are still under-allocated to emerging markets, and once tensions surrounding Iran subside, emerging markets should benefit from cheaper energy, a weaker US dollar and lower interest rates, with India being a key beneficiary of this outlook.
Indian households witnessed a sharp erosion of wealth in equities during Q4, with nearly ₹12.6 lakh crore wiped out amid a broad market correction triggered by geopolitical tensions, rising crude oil prices, and sustained foreign investor selling, according to the latest NSE Market Pulse report. The correction coincided with a more than 10% fall in the benchmark Nifty during the quarter ended March, as markets reacted to escalating conflict concerns in West Asia, including tensions linked to Iran, alongside a surge in global crude prices. Despite the sharp quarterly loss, cumulative household equity wealth creation since April 2020 remains significant at around ₹44 lakh crore, though fiscal 2026 saw a net dip of ₹2.5 lakh crore largely driven by the fourth quarter correction.
Despite foreign investor exodus, domestic buyers are providing crucial support through monthly systematic investment plans (SIPs), which have grown nearly tenfold over the past decade, as reported by Reuters. Domestic institutional investors (DIIs) now own a record share of Indian equities while foreign ownership is at an all-time low. According to Aman Sethia, head of treasury at Groww, without local DIIs and retail liquidity, the Nifty would have been around 19,000 or 20,000 over the last year. As per Himanshu Srivastava from Morningstar India, domestic investors remained very resilient during the correction and prevented sharper dislocations, reflecting confidence in India's long-term fundamentals. The report also highlighted that combined individual holdings have now exceeded FPI ownership for six consecutive quarters, reversing a long-standing structural gap that earlier favoured foreign investors. Bank of America's Candace Browning adds that without local DIIs and retail liquidity, the Nifty would have been around 19,000 or 20,000 over the last year.
The biggest near-term risks stem from the ongoing West Asia conflict, which affects India's growth, fiscal and current account deficits, and the rupee given its reliance on imported energy, according to Bank of America's analysis. Rising inflation could necessitate policy rate hikes and weigh on corporate earnings, where they forecast 8.5% growth in FY27 versus 15% expected by the market. However, potential policy reforms aimed at improving energy security, boosting capex, and attracting foreign flows could strengthen long-term growth visibility. The financials sector, especially large banks, offers good value in their view, along with opportunities in capital market plays, hospital and consumer discretionary sectors such as travel and tourism, quick commerce and jewellery. A resolution of the West Asia conflict, a peak in global artificial intelligence (AI) capex, and meaningful policy action could serve as catalysts for a structural return of foreign institutional investors to India.
