In 2026 to this point, 37% of Sensex buying and selling days have ended with adverse two-year returns, the best share since 2012, in accordance with an ET evaluation. The weak spot is much more pronounced over one yr, with 62.3% of buying and selling days this yr ending with adverse one-year returns, the best within the dataset. The earlier peak was 59% in 2012, adopted by 58.3% in 2016 and 47.6% in 2008.
The 2-year image is much less extreme than the worst intervals on report, however 2026 marks probably the most vital deterioration since 2012.
In 2012, 82.5% of Sensex buying and selling days ended with adverse two-year returns, adopted by 75.7% in 2009. In 2008, the determine was 23.2%, whereas it stood at 20.2% in 2010 and 21.5% in 2011.
What has troubled markets in 2026?
India has changed Indonesia as Asia’s least-preferred inventory market in a survey of fund managers by Financial institution of America Corp., signalling rising warning towards a market that’s among the many world’s worst performers this yr. That is the second time this yr that India has been labelled the least favoured market.
Indian shares had been final termed the least most well-liked within the BofA ballot in Might, because the nation confronted progress stress from rising power prices following the US-Iran warfare, which triggered a rally in world crude oil costs. With no signal of progress towards resolving the battle, power costs are climbing once more, weighing on investor sentiment.
Iran warfare – India, one of many greatest importers of oil, has been on the receiving finish of a pointy selloff after the Iran warfare triggered large oil shocks beginning in February. Provide via the Strait of Hormuz is unlikely to return to regular any time quickly, with Iran claiming complete management over the passage, whereas the US is now claiming management of the waterway.Oil costs nonetheless have room to maneuver larger. Brent is predicted to climb in the direction of $92-$95 per barrel, though the tempo of the rally will depend upon the depth of the battle. Any additional escalation in hostilities might shortly push costs above $100 per barrel within the close to time period.
FII exodus – Because the September 2024 market peak, FIIs have remained persistent internet sellers, with cumulative outflows of practically $60 billion, together with nearly $30 billion in CY26YTD. After 4 straight months of heavy promoting between March and June 2026, FIIs lastly turned internet patrons in July, investing $2.5 billion, their highest month-to-month influx prior to now 13 months.
Overseas buyers had been cautious earlier within the yr due to wealthy valuations, world uncertainty and altering expectations round rates of interest. Their latest shopping for suggests a few of that stress has eased, although analysts stay watchful.
El Nino worries – Whereas oil has dipped 23% from its 2026 peak of $120, Indian fairness buyers hoping for a significant market breakout are trying on the unsuitable indicator. As the worldwide oil shock fades, a much more extreme macroeconomic risk is constructing within the skies.
A quickly growing “Tremendous El Niño” has triggered the weakest begin to the monsoon in a decade, threatening 56% of India’s GDP tied to consumption and locking fairness markets in a persistent holding sample. With the final two-year return of the Nifty remaining flat, the danger matrix for Indian equities has basically pivoted from world provide shocks to home demand destruction.
Will Sensex, Nifty bounce again?
“With the tempo of earnings progress strengthening and the breadth of progress enhancing, we anticipate the risk-reward profile to turn into more and more favorable, enhancing India’s attractiveness from an FII perspective,” analysts at Motilal Oswal stated. “With FII promoting now displaying indicators of moderation and home liquidity remaining resilient, we anticipate market efficiency to strengthen as geopolitical uncertainties ebb,” the brokerage added.
Overseas institutional buyers have began returning to pick out midcap and smallcap shares after reducing their holdings for 2 straight quarters, in accordance with knowledge from Ace Fairness. The shopping for comes as broader FII flows into Indian equities have additionally improved. After promoting in most months earlier this yr, FIIs turned internet patrons in July and August. They purchased Indian shares value Rs 11,045 crore in July and Rs 13,123 crore in August.
The sample reveals that overseas buyers are usually not shopping for the complete market in the identical manner. They’re returning selectively to corporations the place progress, liquidity, earnings visibility or inventory efficiency seems to justify recent publicity.
India could also be one portfolio rebalance away from attracting about $25 billion in overseas fairness inflows, as world fund managers search shelter from volatility in AI-heavy Asian markets, in accordance with HSBC.
Greater than 80% of energetic world emerging-market funds are underweight India. If these funds merely restore their allocations to impartial, the shift might generate round $25 billion of inflows, HSBC strategists Prerna Garg, Herald van der Linde and Yogesh Aggarwal stated in a report.
“FII outflows linked to AI rotation have largely performed out,” the strategists stated. A return to impartial by underweight funds alone “might drive round $25bn of inflows.”
The potential reallocation would mark a big reversal for Indian equities after overseas buyers diverted capital towards markets benefiting extra immediately from the artificial-intelligence commerce. HSBC now sees these positions changing into more and more crowded, whereas sharp swings in AI-exposed markets are strengthening India’s enchantment as a diversification play.
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The potential return of overseas capital would add to persistent home demand. Systematic funding plan contributions to mutual funds proceed to carry up, whereas internet fairness fund inflows recovered in June, with a big share directed towards small- and midcap funds. Even modest however constant overseas shopping for might subsequently present significant assist to the market, HSBC stated.
(Disclaimer: Suggestions, recommendations, views and opinions given by the consultants are their very own. These don’t characterize the views of The Financial Instances)
