Geopolitical developments to drive equities

Indian equities are expected to remain highly sensitive to geopolitical developments in the near term, with markets likely to trade within a broader range. Stock- and sector-specific action is likely to continue, driven by evolving news flow and the final leg of the Q4FY26 earnings season.

Next week’s key macro events include India’s April CPI inflation data, which will be closely tracked for implications on the RBI’s rate outlook, alongside US April CPI and PPI prints that could materially shape Fed rate-cut expectations, bond yields and global risk sentiment.

Last week, equity markets witnessed a cautious but positive undertone, with benchmark indices consolidating while broader markets continued to outperform. The Nifty50 ended marginally higher by 0.3%, while the Nifty Midcap100 and Smallcap100 gained 2.9% and 3.3%, respectively, reflecting improved risk appetite and strong stock-specific participation across broader markets. Sectorally, performance remained mixed. Nifty Auto (+4.7%) emerged as the top gainer, supported by strong monthly sales data, healthy demand momentum and optimism around easing supply-side pressures. Nifty Pharma (+2.6%) also outperformed, aided by defensive positioning and continued optimism around domestic growth opportunities.

The Q4FY26 earnings season has so far has been mostly in-line to better than expectations, though the trend remains selective rather than broad-based. With earnings of 154 MOFSL universe companies growing 17% YoY (Vs our estimate of 13% YoY). Growth was led by Metals (+53%), Auto (+22%), and BFSI (+18%) which together contributed 96% of the incremental earnings growth during the quarter. While the overall earnings trajectory remains supportive, management commentary on demand conditions, margin outlook, and FY27 growth visibility will be equally critical in shaping stock-specific outcomes in the days ahead.

Crude oil and currency trends will remain key market monitorables. Brent witnessed sharp swings last week, starting near $114 per barrel, briefly correcting to around $96 on optimism around potential US-Iran diplomatic progress, before recovering to approximately $104 as tensions resurfaced. For India, sustained crude volatility remains a key macro risk, given its impact on inflation, the current account and input costs. The rupee mirrored this volatility, rebounding to ~94.17 after hitting a record low of 95.36 earlier in the week, aided by easing crude prices and improved risk sentiment. 

Domestic macro indicators continue to provide a reassuring backdrop. GST collections surged to a record Rs 2.43 lakh crore in April, driven by strong import-linked revenues and broad-based economic activity. Auto sales reinforced this optimism, with passenger vehicle volumes rising ~24.5% YoY while two-wheeler sales surged ~38% YoY, pointing to sustained demand momentum well beyond seasonal inventory restocking.

Policy support has also turned more proactive. The Union Cabinet approved the Emergency Credit Line Guarantee Scheme (ECLGS) 5.0, a Rs 18,100 crore government-backed guarantee scheme aimed at facilitating incremental credit flow for sectors impacted by West Asia-related disruptions, including a dedicated support window for aviation. Meanwhile, strategic policy momentum remains strong, with the government approving multiple firms under the critical mineral recycling scheme, signalling an accelerating push toward domestic supply-chain resilience and circular economy infrastructure.

Overall, while near-term volatility is likely to persist, supportive domestic macros, policy measures and stable earnings trends provide some cushion to sentiment. Going forward, pharma, defence and metals are expected to remain in focus. Pharma could benefit from its defensive nature and rupee tailwinds supporting export earnings, while defence continues to gain from strong order inflows and rising global military spending. Metals are also likely to stay supported by elevated LME prices and improving global demand trends.

(The writer is Head of Research, Wealth Management, MOFSL)