Sensex recorded its weakest annual performance since the pandemic in FY26, declining 7.1%, as Trump tariffs, AI and the US-Israel war on Iran led to FPIs selling a record $19.69 bn of Indian equity during the year. Stocks posted their biggest declines in March as elevated oil prices fed investor worries over the Indian economy's dependence on imported energy. Rupee closed at ₹94.83 as an RBI directive to banks to unwind their forex holdings provided temporary relief at the end of a financial year that saw the currency decline 9.85%. Rupee declined 4% in March. The 10-yr gilt hardened to 7.04%, its highest in nearly 2 yrs, despite a percentage-point reduction in RBI's policy rate.
The latest official projections peg India's GDP growth at 7.4% and inflation at 2.1%. These estimates will change to incorporate developments in the Persian Gulf over the next few weeks. But they serve to emphasise the country's strong economic fundamentals as it confronts the latest energy shock. Markets had recovered partially from the uncertainty over US reciprocal tariffs, which were lowered as New Delhi and Washington moved closer to a trade deal. That now seems like a long time ago. Impact of AI on India's technology industry is seen as a longer-term trend, and is reflected in the IT index leading the decline in equities over the financial year.
A market recovery from this point is dependent on the duration of elevated energy prices. Domestic consumption has been propped up by tax stimulus and monetary easing. This provides the Indian economy its resilience to external shocks. Supply chain disruptions and inflation pass-through will affect corporate performance. Improving margins provide some cushion for India Inc to absorb the shock. The macroeconomic framework is also more robust than during previous crises. The market response may have run ahead of India's strong foundations that allow it to take on global uncertainty. The economy will demonstrate yet again whether it is, as the cliche goes, an island of calm in a global storm.
The latest official projections peg India's GDP growth at 7.4% and inflation at 2.1%. These estimates will change to incorporate developments in the Persian Gulf over the next few weeks. But they serve to emphasise the country's strong economic fundamentals as it confronts the latest energy shock. Markets had recovered partially from the uncertainty over US reciprocal tariffs, which were lowered as New Delhi and Washington moved closer to a trade deal. That now seems like a long time ago. Impact of AI on India's technology industry is seen as a longer-term trend, and is reflected in the IT index leading the decline in equities over the financial year.
A market recovery from this point is dependent on the duration of elevated energy prices. Domestic consumption has been propped up by tax stimulus and monetary easing. This provides the Indian economy its resilience to external shocks. Supply chain disruptions and inflation pass-through will affect corporate performance. Improving margins provide some cushion for India Inc to absorb the shock. The macroeconomic framework is also more robust than during previous crises. The market response may have run ahead of India's strong foundations that allow it to take on global uncertainty. The economy will demonstrate yet again whether it is, as the cliche goes, an island of calm in a global storm.
