Domestic equity benchmarks extended their weak momentum on Wednesday, opening lower amid subdued global cues and rising risk aversion. The Nifty 50 opened at 25,141, down 91.50 points or 0.36%, while the BSE Sensex slipped 385.82 points. This latest decline reflects ongoing market uncertainty as investors navigate challenging global conditions and domestic headwinds. According to latest reports, the benchmark Nifty 50 has delivered negative returns over the last two years, with a negative return of over 1% from 12 July 2024 to 13 July 2026. The market has been swinging between highs and lows, with fresh headwinds emerging just when recovery appears possible.
The Indian stock market has witnessed a stark divergence between foreign and domestic investor behavior this year. According to reports from Livemint, foreign portfolio investors have withdrawn nearly ₹2,59,115 crore from Indian equities till 10 July, as per NSDL data. However, domestic institutional investors, led by systematic investment plans, have contributed almost ₹4.8 lakh crore, effectively absorbing the FPI selling pressure. This growing domestic participation has undoubtedly strengthened India's equity market, though experts caution against assuming this support can completely offset foreign capital outflows. Market strategist Rohit Srivastava from Indiacharts.com believes there could be short-term weakness that may pull the Nifty down by around 500–800 points from current levels, though he expects eventual recovery.
Sanjay Parekh, Founder & CIO of Sohum Asset Managers, which manages assets worth over ₹172 crore, believes geopolitical tensions and supply-chain risks could keep Indian markets in a consolidation phase until there is greater clarity. His fund has shifted towards large-cap market leaders, with Bharti Airtel remaining one of its highest-conviction holdings. Parekh expects Bharti Airtel's businesses beyond mobile services, including cloud services, Reliance Industries and digital lending, to create value over the next two to three years. The fund's portfolio includes Maruti Suzuki, Adani Ports, Grasim, Bharti Airtel, Reliance Industries, Sun Pharma, Infosys, Coforge, DLF, Lodha Developers and Dixon Technologies. Parekh said crude oil prices of $80-85 per barrel remain manageable, but supply-chain disruptions from prolonged geopolitical tensions pose a bigger risk.
The US 10-year bond yield is now near 4.60%, climbing over 4.5% so far this month, creating significant pressure on emerging markets like India. When bond yields rise in developed economies, foreign investors tend to shift money from riskier emerging markets to fixed-income assets back home. As per Master Capital Services, rising bond yields can aggravate foreign capital outflow from India and exert pressure on the stock market. Global yields remain the market's first pressure point because the discount rate for equities is being reset while earnings growth is still uneven. Higher yields in the US, Japan and Europe raise the hurdle rate for emerging-market equities and make global liquidity more selective.
India's economic outlook faces significant headwinds with the Asian Development Bank cutting India's economic growth forecast for fiscal year 2027 to 6.6% from the 6.9% projected in April. The Indian economy has clocked strong growth over the last few years, but geopolitical turmoil and a spike in crude oil prices have come as major shocks. India's merchandise trade deficit has widened to a five-month high of $30.43 billion in June, jumping by over 50% year-on-year from $19.1 billion in the year-ago month. Aditi Nayar from ICRA expects the current account deficit to widen to at least 1% of GDP in FY27. Additionally, the El Niño risk poses another key factor that can hit economic growth by dampening overall consumption.
From the stock market's perspective, the AI trade remains among the key factors that will influence foreign capital flow. The AI-driven rally has lost some momentum in recent weeks as investors booked profits following stellar gains in AI-heavy markets, which inflated their valuations. According to experts, this prompted some foreign portfolio investors to selectively buy Indian equities this month, aided by easing geopolitical tensions. However, renewed tensions in the Middle East have once again pushed oil prices higher, putting pressure on the rupee, keeping inflation elevated, and reducing the likelihood of interest rate cuts. Market strategist Ravi Singh from Master Capital Services advises investors to stay focused on quality businesses and avoid making decisions based on short-term market swings until greater clarity emerges on geopolitical developments.
