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Equity
Indian headline indices ended on  positive note in October. The Nifty rose 1.9% as positive sentiment outweighed concerns regarding higher brent crude prices caused by the West Asia conflict. The month also saw a sharp divergence beneath the headline indices, with periods of significant weakness in mid- and small-cap stocks and hence the broader market underperformed with the Midcap Index and Small cap Index declining -3.4% and -4.1%, respectively. Most sectoral indices ended lower except IT and pharma. IT Index (+18%) led the gains. Capital goods, metals and consumer durables indices declined the most: -7%, -7% and -5%. Global markets turned risk-off late in the month as concerns about AI capex and expectations of a Fed rate hike weighed on investor sentiment.

On the macro-economic front, September CPI inflation inched up to 5.5% YoY compared to 4.8% YoY in August while IIP growth slowed 6.7% in September from 8% in August.  System credit growth held strong at 18.4% YoY as of mid-Oct-26 while deposit growth eased to 16.7% from 17.3%, taking the credit-deposit growth gap to 166 bps. India’s gross GST collection for October 2026 reached Rs 2.31 tn, marking a 22.9% year-on-year increase compared to Rs1.88 tn in October 2025. Brent crude rose 15.7% during October to around US$113/bbl, increasing concerns around inflation, corporate input costs and India's external balance.

Key developments included (1) The RBI MPC unanimously hiked the policy repo rate by 25 bps to 5.5% and changed its stance to calibrated tightening, (2) The RBI announced several measures to contain FX risks and manage liquidity, (3) Gold and silver prices declined -7% and -19%, whereas crude oil remained elevated, rising to US$135/bbl on Oct 8 and (4) The US Fed kept its benchmark rate unchanged at 3.75-4%.

 

FPIs continued to remain sellers and sold US$4 bn of Indian equities in the secondary market, whereas DIIs bought US$6.5 bn. Primary market activity remained strong, with 13 IPOs raising US$4.7 bn during October.

Result season has been healthy. So far, 31 Nifty-50 companies have reported results, and net income grew 22% YoY, 3% ahead of expectations.

Outlook
We see a clear acceleration of the trend of outperformance of quality growth stocks and reversing the underperformance seen in FY24. Going forward too, we expect divergent set of returns between high quality and high growth investing and other buckets.

We see India growth story to continue with financialization, consumption, digitization, healthcare, and government capex as the key pillars to this story. Domestic growth and corporate fundamentals remain important anchors.

While there are near term challenges in term of geopolitics, crude and hardening of interest rates, bulk of the same has already impacted Indian markets. Large caps in particular bore the bulk of this reset and are more attractive at this juncture. Easing of the above uncertainties, reversal of AI flows and inflows could be external triggers for markets.  

 

 

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