Conjecturing Stock Market Movements In FY26

If Sensex data is looked at on a weekly basis, it ended on March 29, 2024, at 73,651. One year later, on March 28, 2025, it was at 77,415. The increase was just 5.1%. Interestingly, if the week-ending data is examined for the year, it peaked at 85,571 for the week ending September 27, 2024. The low was 72,644 on May 10, 2024. The variation has been around 13,000 points.

For the 52-week period, the Sensex was less than 75,000 for 11 weeks. For 25 weeks, it was between 75,000 and 80,000 and above 80,000 for 16 weeks. Therefore, on the whole, the performance was more than satisfactory. From mid-July to mid-October, the index was above 80,000, giving a sense of stability. In a way, it can be said that the level of 70,000 has been maintained irrespective of the economic conditions.

In the present financial year, for the 7 weeks ending May 16, 2025, it was less than 76,000 for 2 weeks when the tariff regime of the US was announced. On May 16, it was 82,330. The two random shocks, the terrorist attack in Kashmir and the time India retaliated, were when the index went to less than 80,000. Otherwise, it has been business as usual for the markets and investors.

The significance of all these numbers is that, for the entire year, the stock index has been range-bound.

The year was quite tumultuous for the economy as such. First, growth was lower at possibly 6.5% against 9.2% last year. Second, corporate profitability was low over all 4 quarters, with the top-line and bottom-line growth being in single digits. This is one factor which has also affected the GDP growth, as value added reckoned in calculating the GDP is based on corporate profitability. In fact, the IPO market was less ebullient this year relative to FY24.

Third, investment levels remained just about stable, as private sector investment was narrowly focused. The infra-based companies were investing, while the consumer goods segment was rather dormant, as they had excess capacity. Fourth, there was some pushback for government capex due to the elections, and while there was some hurry shown towards the end of the year, there was a shortfall in spending. Fifth, the emergence of Donald Trump as President was significant, as he has been unequivocal in his articulation on the tariff issues. This has rattled stock markets all over, even though the deferrals have been given a big thumbs up subsequently. Sixth, consequently, the FPIs have been whimsical all through the year, with the final net inflow being very insignificant. The prospect of Making America Great Again meant that there would be more investment opportunities in the US, which caused investments to turn away from emerging markets, in particular as they have been targeted more than the developed ones.

There has been, however, a major push from the retail end through the mutual funds route. FY24 was a year when the market delivered very good returns of 25%. This was a precursor to the retail frenzy in the market, where there was a lot of enthusiasm shown in the equity and F&O segments to the extent that the SEBI had to launch a campaign to dissuade the less financially literate investors from staying away from the latter. This was the time when mutual funds picked up and were seen in terms of incremental assets under management, increasing by around Rs 13 lakh crore. This was the phase when bank deposits did not quite yield high returns, which tended to get capped at around 8-8.5% for specific tenures for certain time periods. This provided support to the stock market even while FPIs were quite idiosyncratic.

Against this background, there is reason to be quite satisfied with the stock market performance, as quite clearly, the investor view is forward-looking. The resilience shown by the economy has given confidence that it will remain steadfast this year too, though it may not yet accelerate. More importantly, there are expectations that consumption and investment should improve, which, in turn, will help corporates to do better. The government has given a push to consumption with tax concessions, which, along with lower inflation during the year, should spur consumption, especially in urban areas. The middle class has gotten this benefit, something which was absent in the past.

Further, a good monsoon, which has been predicted for the year, will mean that agricultural harvests should hold up and provide the push to rural incomes and, hence, demand. This has been supplemented by the RBI, indicating more rate cuts after already lowering the repo rate by 50 bps. Housing, in particular, should tick at the consumer end.

Therefore, optimism in the corporate sector is quite profound, which has kept the momentum up. In fact, the fact that India is a domestic-orientated economy means that the impact of higher tariffs by the US, which can lead to a slowdown in exports, may expect the GDP growth only marginally. Further, there are indications that there would be a constructive dialogue between the ministry and the US on the issue of tariffs, which will be a positive for Indian companies that are dealing with exports. The tariff structure announced in April would be implemented in July, and there are indications that several countries are negotiating the same with the US.

Also, with the RBI cutting interest rates, from the point of view of savings, there would be a tendency for the market to once again be more attractive, leading to increased activity. This can be a challenge for banks to garner deposits, as the retail segment continues to put money in the stock market, either directly or through the mutual funds route.

Hence, the overall picture for the markets looks positive. While it will be premature to put a number to the Sensex for, say, December, based on past trends, there will be a range-bound movement which can be in the region of 78,000 to 85,000, with a possible upward movement if corporate performance turns around more decisively. Investors at the retail end need to follow an approach of patience and perseverance, as short-term returns may still be lower than those procured on fixed-income assets. It probably has to be a medium-term stance that has to be taken, as there would be gyrations during the course of the year depending on the economic developments.

The author is Chief Economist, Bank of Baroda and author of ‘Corporate Quirks: The Darker Side of the Sun’. Views are personal.