The Indian stock market closed the fiscal year 2024-25 on a positive note, with both benchmark indices, BSE Sensex and NSE Nifty, delivering impressive returns despite facing significant challenges. A remarkable 6% rally in March helped the FY25 end with 5% annual gains, setting an optimistic tone for investors heading into FY 2026. This article explores these recent developments in the stock market and analyses their impact on investor sentiment in FY 2026.
March Recovery Breaks Five-Month Losing Streak
The final month of FY25 marked a significant turnaround for Indian equities as they broke their longest monthly decline since 1996. Between October 2024 and February 2025, the stock market plunged nearly 16% from its September peaks, erasing approximately ₹94 lakh crore of investor wealth during this prolonged correction.
This powerful March revival came despite looming concerns about US President Donald Trump’s aggressive tariff policies. The recovery was primarily driven by a crucial shift in Foreign Institutional Investor (FII) strategy from sustained selling to modest buying, which became evident in late March.
Key Drivers Behind the Market Rebound
Several factors contributed to the reversal in market trends and renewed the investor sentiment heading into FY 2026:
- Attractive Valuations: The nearly 16% correction from September 2024 highs made Indian equities more appealing to both domestic and foreign investors.
- Improved Macroeconomic Indicators: Enhanced GDP growth figures, a stronger Industrial Production Index, and moderating inflation created a favourable backdrop for market recovery.
- Currency Appreciation: The Indian rupee demonstrated remarkable strength in March 2025, marking its best monthly performance since November 2018.
- Return of Foreign Investors: FIIs substantially reduced their selling pressure in March, with net outflows dropping to just ₹3,972 crore, a significant improvement from previous months.
- Sectoral Rotation: While the IT sector faced pressure due to tariff concerns, defensive sectors like pharmaceuticals showed remarkable resilience with Nifty Pharma rising over 2% amid global uncertainties.
Economic Outlook for FY 2026
As we enter FY 2026, several economic projections provide context for potential market trends:
- GDP Growth Projections: Multiple agencies forecast robust economic growth for India in FY26. EY Economy Watch projects 6.5% growth, while Moody’s Ratings expects it to exceed 6.5%, supported by increased government capital expenditure, tax cuts, and interest rate reductions.
- Monetary Policy Outlook: Analysts anticipate the Reserve Bank of India to implement rate cuts ranging from 50-75 basis points throughout FY26, following its first cut in February after nearly two years.
- Inflation Expectations: Inflation is projected to moderate to approximately 4.4% in FY26, close to the RBI’s comfort zone, driven by easing food prices and potentially normal monsoon conditions.
- Global Trade Dynamics: The shift in global trade patterns, particularly with the implementation of US tariffs, will create both challenges and opportunities for Indian exporters and the broader market.
Sector-Specific Impacts
The recent market trends have affected various sectors differently, offering insights into potential opportunities for FY 2026:
- Information Technology: The sector faces near-term headwinds due to US tariff concerns, with the Nifty IT index dropping significantly following Trump’s tariff announcements. However, the relatively lower 27% tariff on Indian goods compared to China (34%) and Vietnam (46%) might provide a competitive advantage in the medium term.
- Pharmaceuticals: The sector has emerged as a bright spot, with the Nifty Pharma index rising over 2% recently. Notably, pharmaceutical imports from India have been excluded from the new US reciprocal tariff structure.
- Banking and Financial Services: Public sector banks have shown resilience, with the Nifty PSU Bank index climbing nearly 2% amid market volatility.
- Manufacturing: The government’s Production Linked Incentive (PLI) schemes and push for manufacturing are expected to draw long-term foreign capital, potentially benefiting this sector in FY26.
Implications for Different Investor Segments
For investors navigating the Indian market in FY 2026, the recent stock market gains and economic projections offer various considerations:
- Retail Investors: The market’s resilience despite global challenges demonstrates the underlying strength of the Indian economy. However, heightened volatility may persist, requiring disciplined investment approaches.
- Institutional Investors: The shift in FII behaviour from selling to buying indicates improving confidence in India’s growth story despite global headwinds. This could support market stability throughout FY26.
- Sector-Specific Investors: The divergent performance across sectors suggests opportunities for tactical allocation, with defensive sectors potentially offering stability during periods of uncertainty.
- New Market Entrants: For those looking to enter the market, the recent correction has created relatively better entry points compared to the peak valuations seen in September 2024.
Technical Outlook and Key Levels
From a technical perspective, the Nifty respected its 100-day exponential moving average support near 23,400 during the March recovery. The index faces resistance in the 23,800–23,810 zone, and a decisive move above this level could extend the rally towards 24,000–24,080, where the 200-day simple moving average is positioned.
On the downside, market observers note that if the Nifty falls below 23,400, it could decline further to support levels around 23,200–23,000. These technical levels will likely play a crucial role in determining short-term market movements in the early months of FY26.
Looking Ahead: Navigating FY 2026
As India enters FY26, the stock market faces both opportunities and challenges that will likely shape investor sentiment. Let us have a quick look at them:
- The implementation and impact of US tariffs will be a significant factor influencing the market direction in the near term.
- Domestic consumption strength, supported by tax relief measures in the Union Budget 2025-26, could help offset potential export challenges.
- Corporate earnings growth will remain crucial for sustaining market momentum and justifying valuations.
- Continued improvement in macroeconomic indicators, particularly inflation and fiscal metrics, will support market stability.
- Geopolitical developments and global commodity price movements will continue to introduce periods of volatility.
Final Remarks
While the market has begun FY26 on a cautious note due to concerns about Trump’s tariffs, the strong finish to FY25 demonstrates the underlying resilience of Indian equities. The economic growth projections for FY26 provide reason for optimism, though investors will need to navigate carefully through periods of potential volatility.
Connect with Torus Digital for comprehensive market research and trading solutions to navigate these dynamic market conditions effectively in FY 2026.
