Frantic sell-off in Indian markets sparked by the West Asia conflict has not only dented investor sentiment but also has taken the wind off equities. The rising geo-political risks has sapped momentum from stocks, so much so that Indian markets have logged one of the worst financial years since Covid-led disruptions in FY20.
From the beginning of January, benchmark indices Sensex and Nifty have skid over 10 percent. However, analysts see more pain left as investors are re-strategising their portfolio with prolonged West Asia hostilities driving the critical Brent crude price above $100 per barrel. The fear is so deep that Venugopal Garre, managing director and India head of research at Bernstein Research wonders if a long-drawn conflict will take us back to the great financial crisis (GFC) horrors of 2008?
In the years following the GFC, India’s economic growth slipped to 5 percent from 10 percent, inflation spiked to 10 percent and the rupee depreciated 30 percent against the US dollar.
“Some things appear eerily similar: The last 18 months have already seen an 11 percent decline in the Indian rupee, while the crude price threatens to push inflation back above the tolerance range for the first time since October 2024,” Garre says.
Indian markets suffered heavy losses in the last two months of the fiscal ending March 31, 2026. Nifty declined 5 percent while Sensex slipped 7 percent in FY26, logging their worst fall in six fiscals. In FY20, both Sensex and Nifty had crashed 24-26 percent, followed by a sharp gain of 68-71 percent in FY21. In FY25, both Sensex and Nifty had marked modest gains of 5 percent each.
In FY26, the smallcap index fell 5 percent, indicating a reversal from the steady gains seen in FY25. Midcaps showed relative resilience with a 2 percent gain in FY26. Unlike the relatively balanced performance in FY25, FY26 saw a clear split across sectors, with several segments ending in the red. PSU banks and metals emerged as the top-performing sectors with a strong 26 percent and 23 percent gain respectively.
On the flip side, realty (24 percent down) turned out to be the worst-performing sector. IT (-21 percent) and FMCG (-15 percent) also lagged.
In institutional flows, foreign institutional investors were net sellers of Indian stocks worth $26 billion in FY26. However, domestic institutional investors including mutual funds, banks and pension funds poured $94 billion into equities.
Meanwhile, Goldman Sachs has lowered Indian equities to market-weight from overweight on less attractive risk-reward. It has citied worsening macro and slowing earnings growth as reasons.
“We see risks tilted to the downside in the next three-six months as we think the market may not be pricing in the full extent of earnings cuts. Potential upside catalysts include earlier-than-assumed resumption of oil flows, and a clear recovery in India’s earnings cycle,” analysts at Goldman Sachs say.
Weak foreign flows, coupled with rate hikes domestically are key risks for Indian markets.
Goldman Sachs has lowered earnings growth forecast materially for India, by 9 percentage points cumulatively over the next two years to 8 percent in 2026 from 16 percent prior to the West Asia conflict. “We expect consensus estimates to be cut meaningfully over the next 2-3 quarters, in line with trends in prior oil-supply shocks, with the largest cuts in domestic cyclical pockets,” Goldman Sachs analysts say.
However, there are other analysts who see value opportunity in the current market downturn. Sanjeev Prasad, co-head, institutional equities, Kotak Institutional Equities argues that corrections in the broader market and more in several stocks since the start of the West Asia war implies a prolonged crisis and a large cut to earnings in perpetuity, "which is not correct".
Prasad sees better reward-risk balance in more parts of the market after a decent correction in valuations of the markets. “However, we would stress that the better reward- risk balance should not be construed as anything beyond that. This is nowhere such as March 2009 or March 2020, when we had unequivocally recommended buying the market. We still find valuations on the higher side for the bulk of the consumption and investment names,” he says.
At the same time, he fears a higher downside risk to earnings for several sectors in the case of a prolonged conflict lasting for several months, although the impact would vary depending on the ability of the sector and companies to take offsetting price increases.
Among asset classes, FY26 marked exceptional gains in precious metals. In dollar terms, silver surged 106 percent in FY26, building on 33 percent returns in previous year. Gold also extended its momentum, rising 49 percent following a 29 percent gain in previous year.
First Published: Mar 31, 2026, 17:34
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