Indian stock markets: 10 key risks and supports in 2026

Why geopolitics is setting the market tone

Indian equity markets are facing a tough near-term setup as global geopolitical tensions, especially the Iran-Israel/US conflict, weigh on risk appetite despite supportive domestic fundamentals. A Motilal Oswal Financial Services (MOFSL) report said the conflict has “vitiated” the near-term market backdrop. The key concern is not only market sentiment but the direct macro impact of energy supply and pricing.

Strait of Hormuz exposure is the central risk

The report highlighted India’s dependence on energy flows through the Strait of Hormuz. It noted that about 35-40% of India’s crude demand and 54% of its pre-war LPG needs pass through the region. That concentration raises the risk of supply disruption and an extended risk premium in crude prices, which can quickly transmit into inflation, the rupee, and corporate costs.

Earnings growth seen moderating in the March quarter

MOFSL expects corporate earnings growth for its coverage universe to slow in the March quarter. It projected earnings growth of 10% year-on-year, compared with 18% and 15% year-on-year growth recorded in 3Q and 2QFY26, respectively. The report linked the moderation primarily to higher crude oil and gas prices. It also said the surge in crude has reversed earlier positive earnings revisions.

Correction and valuations: Nifty below long-term averages

The report described a broad market correction triggered by rising energy prices, currency pressures, and record foreign investor outflows, with a double-digit decline across indices. It also pointed out that the Nifty is now trading at a discount to its long-term averages, making valuations “more sober” and improving the risk-reward balance. While the report remained cautious on the near term, it expressed medium-term optimism if geopolitical pressures ease.

What recent trading signals show

In one market snapshot cited, the Nifty 50 ended a session 1.24% lower at 24,865 and the BSE Sensex fell 1.29% to 80,238, reflecting broad risk-off positioning amid West Asia tensions. GIFT Nifty futures were cited as pointing to a sharp gap-down opening in that period. These moves underline how quickly geopolitics and crude can dominate the trading narrative, even when domestic drivers are stable.

Crude and the rupee: the macro transmission channel

Brent crude was cited trading around $18 to $10 per barrel, with warnings that supply disruption risks could push prices higher. The rupee was also reported weaker, trading around 91.59 to 92.05 against the US dollar in that period, as global risk aversion intensified. One risk framework cited was that every $10 per barrel increase in crude can inflate India’s current account deficit by 0.5% of GDP, adding pressure to both inflation and the currency.

Winners and losers: a bifurcated market

The environment has created a split across sectors. Upstream producers such as ONGC and Oil India were described as clear beneficiaries, with a brokerage note stating that every $1 per barrel rise in Brent can lift their earnings per share by 1.5% to 2%. In contrast, oil marketing companies such as IOCL, BPCL and HPCL were flagged as facing margin pressure when crude input costs rise. Defence names were also mentioned as potential beneficiaries, alongside a data point that India’s defence spending rose 18% year-on-year in FY26, with further double-digit growth budgeted.

Spillovers beyond energy: trade, exports and policy positioning

Separately from the oil shock channel, the broader external environment is being shaped by shifting US foreign and trade policy and India’s multi-alignment approach. November data cited in the text showed goods exports rising by almost 20% in November to $18.1 billion, the fastest growth in three years. The trade deficit was reported to have narrowed to $14.5 billion from $11.6 billion in October. The same context also referenced higher US tariffs and tighter visa constraints weighing on India-US trade negotiations, with no major breakthroughs reported.

Corporate updates show pockets of resilience

Even as geopolitics tempers sentiment, company updates cited in the text point to selective strength. Titan reported 40% Q3 sales growth, and Jubilant Foodworks reported 13.4% year-on-year revenue growth in the December quarter, with Domino’s India like-for-like growth of 5%. Lodha Developers reported 25% pre-sales growth for the quarter ended December 31. These data points reinforce that domestic consumption and company-specific execution can still move stocks in a choppy tape.

Key numbers investors are tracking

What MOFSL expects next

MOFSL’s central message is that the trajectory of global risk assets depends heavily on geopolitical developments, and that a resolution to the Iran-Israel conflict is key for risk assets. It also said policy measures undertaken in FY26 may start to yield results, with reforms potentially delivering “delayed gratification” in FY27 once war-related uncertainty fades. For investors, the immediate focus remains crude, the rupee, foreign flows, and how quickly earnings expectations stabilise.

Bottom line

Indian equities are balancing supportive domestic drivers such as reforms, demand conditions, and investor participation against a geopolitics-driven energy shock risk. The correction has made valuations more reasonable, with the Nifty cited as trading below long-term averages. The next leg for risk assets, as framed by the report, depends on whether tensions ease and energy price pressures reverse.