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Below the Market Review Q1 FY27 & Outlook July 2026 by Prateek Nigudkar, Sr. Fund Manager, Shriram AMC

When we last wrote to you at the end of March, Indian markets were in the grip of a full-blown crisis. The Nifty 50 had delivered close to nothing over two years, the midcap and smallcap indices were in deep correction, the rupee was at all-time lows, Brent crude had breached $115/bbl on the effective closure of the Strait of Hormuz, and the bond market was pricing in a materially wider fiscal deficit. We closed that note by framing the next four to six weeks as decisive, split between a swift-resolution base case and a prolonged-conflict tail risk.

As we write at the end of June, the landscape looks very different. Things are, on balance, considerably better than many feared at the depths of the late March sell-off. Indian equities have staged a powerful recovery off the lows, energy prices have cooled sharply, the rupee has stabilized, and a series of decisive domestic policy measures has done much to restore confidence. Yet, beneath the relief rally lies a more uncomfortable reality. The underlying geopolitical situation in west Asia remains fragile, global oil inventories have been heavily drawn down, and the margin for error is thin. The note tries to summarize what happened over the quarter, how the funds are positioned, and how we are thinking about the road ahead.

April–June 2026: A Broad-Based Recovery

The most striking feature of the quarter was the speed and breadth of the recovery from the March end bottom. After a brutal selloff, equities rebounded sharply and encouragingly, the rally was broad-based. The midcap and smallcap indices, which had borne the brunt of the drawdown, staged a bounce, recovering a large portion of their earlier losses as risk appetite returned and domestic flows stayed supportive.

Much of the credit belongs to a decisive sequence of domestic policy actions that collectively calmed markets:

• ECLGS 5.0 - A government backstop for MSME loans, which allayed fears that credit stress in the small-business segment would cascade through the financial system.

• The exemption of overseas bondholders from taxation, removing a long-standing friction and effectively paving the way for India's inclusion in global bond indices which likely results in large, stable and recurring debt inflows.

• An FCNR(B) deposit scheme with the RBI bearing the full cost of currency hedging. Expected to bring inflows in excess of $100 billion, the scheme directly supports the rupee, rebuilds foreign-exchange reserves, and signals the authorities' resolve to defend external stability.

Together, these measures eased pressure on the currency, slowed foreign-institutional outflows, and restored a measure of confidence that had been badly shaken in March

Equity Market Performance: Q1 FY27 (31 March– 30 June 2026) Index Q1 FY27 Return (Apr–Jun 2026) CY26 YTD Return Nifty 50 TRI Nifty Midcap 150 TRI Nifty Smallcap 250 TRI 7.40% 17.36% 24.14% -8.10% 2.53% 6.41% Past performance may or may not be sustained in future and is not a guarantee of any future returns. Please consult your financial advisor or mutual fund distributor before inve

The Energy De-escalation: A US–Iran MOU and the Role of Chinese Inventories

On the geopolitical front, the proximate trigger for the relief was the signing of a Memorandum of Understanding (MOU) between the United States and Iran. The agreement was enough to cool energy markets dramatically, with Brent retreating sharply from its panic highs above $115/bbl. Much to our surprise, we underestimated the role that Chinese strategic inventory liquidation played in easing prices in the framework we outlined in our note last quarter. China's drawdown of stockpiles added meaningful effective supply to the market and amplified the price decline well beyond what the MOU alone would justify. This is an important lesson for our scenario work where the move in prices was as much about inventory mechanics as about diplomacy. We would caution strongly against reading the cooling in prices as evidence that the crisis has passed. The ceasefire remains fragile and both parties have repeatedly violated its terms.

Iran continues to exert effective control over the Strait of Hormuz. In its current form, the MOU materially enhances Iran's regional stature and, counter-intuitively, we believe it raises rather than lowers the probability of future escalation.

On the oil price itself, we think the market is now under-appreciating just how far global inventories have been drawn down. With stockpiles depleted, freight and insurance costs elevated, and a geopolitical risk premium unlikely to dissipate entirely, we see a meaningful probability that crude settles at levels materially above its pre-war baseline rather than returning to the comfortable range that prevailed before the conflict.

The US AI and Semiconductor Juggernaut Rolls On

In sharp contrast to the technology-led rout of February, the US artificial-intelligence and semiconductor complex resumed its powerful advance over the quarter. The AI capital-expenditure beneficiaries such as chips, networking and the associated power and infrastructure ecosystem made fresh all-time highs. That said, the market began to differentiate within the complex.

Several large hyperscalers, including Microsoft, Meta and Oracle, corrected as questions over the return on their enormous AI capital spending resurfaced. Investors increasingly distinguish between the providers of 'picks and shovels' and those funding the build-out. Nvidia, for its part, continued to dominate the AI value chain. A defining feature of the period was an acute shortage of high-bandwidth memory (HBM).

The resulting price surge disproportionately benefited Samsung, SK Hynix and Micron, and the downstream effect rippled all the way to devices. Apple was forced to raise prices to protect its margins against rising component costs.

Capital-markets enthusiasm was on full display during the SpaceX IPO, which generated unprecedented buzz and debuted at a trillion-dollar market capitalization. In the frontier-model race, Anthropic pulled ahead of OpenAI, reaching roughly $41 billion of annual recurring revenue and closing a funding round that valued it at around $960 billion setting the stage for an eventual listing, even as OpenAI pushed back its own IPO. Anthropic's new frontier 'Mythos' and 'Fable' class models generated considerable excitement and, notably, drew usage restrictions from the US government.

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