Indian equities: ICICI Sec flags 2026 rebound setup

Why ICICI Securities is turning less cautious

Indian equities may be close to regaining momentum after months of underperformance, according to a strategy note from ICICI Securities. The brokerage pointed to improving macroeconomic conditions, more reasonable valuations, easing foreign selling, and softer crude oil prices as supports. It said several risks that weighed on markets since September 2024 are starting to reverse. The message is not that volatility has ended, but that the balance of risks is becoming less one-sided.

What had weighed on equities since September 2024

The report frames the recent phase as one where Indian markets struggled to keep pace even when domestic headlines looked constructive. Analysts described this setup as a “relative bear market” where the local market underperforms global benchmarks despite appearing stable in local currency terms. The article also flags that the headline feel of a bull market can mask underlying weakness in breadth and relative performance. That gap matters because it often shows up first in foreign flows, sector rotation, and valuation compression.

Crude oil, geopolitics, and the Nifty 50 linkage

ICICI Securities highlighted crude oil as a key variable for domestic equities, citing the historically inverse relationship between elevated oil prices and the Nifty 50. The near-term picture, however, has been complicated by renewed tensions in West Asia. Siddhartha Khemka, Head of Research, Wealth Management at Motilal Oswal Financial Services, said sentiment is being weighed down by escalating geopolitical tensions in the region. He also said Iran’s missile strikes on Israel, in retaliation to Israel’s actions in Lebanon, pushed Brent crude nearly 3% higher to around USD 96 per barrel.

Why higher crude is a direct macro risk for India

For an import-dependent country, higher oil prices can raise inflation, pressure currency stability, and squeeze corporate margins. Khemka warned these pressures can feed back into equity sentiment through earnings risk and tighter financial conditions. He added that commodity-led inflation, weaker monsoon expectations, and sustained FII outflows could keep the near-term backdrop challenging. The article also notes concerns around the current account deficit when crude stays elevated.

What triggered the sharp sell-off on June 8

Indian markets saw a sharp sell-off on Monday, June 8, amid weakness in global markets. The selling was linked to profit booking in artificial intelligence and semiconductor stocks globally, along with a broader “risk-off” tone. The article also cites liquidity-driven selling ahead of SpaceX’s mega IPO as another factor that added to caution. In parallel, stronger-than-expected US jobs data reignited expectations of further rate hikes by the Federal Open Market Committee, supporting the dollar and hurting risk appetite.

Global brokerages turn cautious on India

The piece highlights a shift in stance from major global houses during April. On April 23, HSBC downgraded Indian equities to underweight, citing elevated valuations, inflation risks from rising energy prices, and pressure on demand and corporate profitability. A day later, JPMorgan cut its rating from overweight to neutral, citing concerns around valuations and earnings risks, and also noting India’s limited exposure to high-growth areas such as artificial intelligence. Analysts such as Kranthi Bathini of WealthMills Securities said geopolitical uncertainty and rising crude were weighing on growth expectations and contributing to this cautious tone.

Technical signals: oversold pockets and a possible catch-up

Alongside macro drivers, the article points to select technical indicators suggesting the possibility of a reversal in lagging stocks. It notes many laggards are in the oversold zone on the Relative Strength Index, defined here as RSI below 30. It also mentions that a bullish MACD crossover on the broader Nifty could signal the start of a catch-up rally. These signals do not remove macro risks, but they help explain why some strategists are looking for stabilization after underperformance.

Foreign flows and the “two-shock” explanation

A market expert in the referenced video argued the recent sell-off is driven more by foreign investor behavior and global events than by valuations alone. The expert attributed heavy FII selling to two India-specific shocks: the India-Pakistan conflict and a global tariff war. The same segment also claims foreign investors sold “old-economy” stocks such as banks, IT, and consumer names, while continuing to buy IPOs and new-age companies. The article suggests a single trigger, such as easing tariffs or a strong Budget, could reverse sentiment quickly, though it does not attach timelines or probabilities.

2026: rebound calls, but with constraints flagged

After a period described as one of India’s worst years of market underperformance in decades, some large Wall Street institutions have flagged a rebound case for next year. Morgan Stanley, Citigroup, and Goldman Sachs are among those cited as expecting markets to claw back lost ground as earnings stabilise and policy support kicks in. State Street Investment Management’s senior strategist Angela Lan said a rebound appears increasingly likely in 2026, adding that the earnings downgrade cycle is largely behind and that policy measures such as rate cuts and GST rationalisation are filtering through consumption and credit.

At the same time, the article presents a more constrained view from the founder of AI-tech firm GQuant, who said fiscal constraints, weak tax growth, and currency pressures may limit the scope for a broader revival in 2026. It also notes that, from a cyclical perspective, India’s growth slowdown is unlikely to reverse quickly.

US policy shocks, rupee risk, and near-term catalysts

The article says the 2025 downturn was exacerbated by new US tariffs on Indian exports and a steep increase in H-1B visa fees, which hurt confidence. Pranay Aggarwal, Director and CEO of Stoxkart, said the near-term view remains cautious due to US tariffs affecting pharmaceutical firms, higher H-1B fees, and a weakening rupee. The article describes two US policy changes attributed to President Trump: a one-time fee of USD 100,000 on new H-1B visa applications, and a “100” tariff on patented imports effective October 1.

Another cited commentator, Meena, said attention is on US-India trade relations for any potential relief rally and that the RBI policy meeting on October 1 is a key domestic event, with markets divided on the chance of a rate cut. Meena also said the rupee has fallen to historic lows and that a move below 89 could further undermine sentiment, while crude oil prices, the dollar index, and FII flows remain key drivers.

Key facts and signals at a glance

Market impact: what investors are reacting to

The article ties the market’s push and pull to three variables: crude oil, global rates, and foreign flows. Rising crude linked to West Asia tensions increases inflation concerns and can worsen India’s external balance, which tends to hurt risk appetite for equities. Higher-for-longer US rate expectations, supported by strong jobs data, can strengthen the dollar and pull capital away from emerging markets. And persistent FII selling can pressure index heavyweights even if local participation remains steady.

Conclusion

ICICI Securities’ argument is that the setup for Indian equities is improving as macro conditions and valuations become more supportive and as some earlier risks stabilise. But the article also makes clear that near-term volatility remains anchored to West Asia geopolitics, crude prices, foreign flows, and US policy developments. Investors are watching defined checkpoints, including the RBI policy meeting on October 1 and cues from US-India trade developments. How these variables move will shape whether a catch-up rally builds or whether the market remains stuck in a phase of relative underperformance.