India's Growth Story Shows Resilience Amid Market Repricing of Uncertainty

Market Volatility Driven by Sentiment, Uncertainty

The Indian stock market has been swinging between gains and losses, driven primarily by sentiment-driven volatility that is disconnected from the underlying fundamentals of corporate India. 6.3% of the US-Iran war and global tariff uncertainty have been the dominant factors, with the US Supreme Court's ruling on February 20 failing to alleviate concerns. The imposition of a 15% global tariff by the US has weighed on sentiment, despite a significant reduction in India's exposure from 50% to 15%.

Q3 FY26 Earnings Picture

While earnings pressure has been observed in working-capital-intensive and commodity-exposed businesses, the fundamental picture remains strong. The BSE 500 universe saw median EBITDA growth of 15% in Q3 FY26, with small caps delivering 17% operating profit growth, mid caps 16%, and large caps 16%. Over the past 9 months, mid-caps have expanded operating profits by 15%, broadly in line with the broader BSE 500's 13%. These are healthy numbers, driven by recovering rural demand, festive consumption, and the RBI's GDP growth estimate for FY26 of 7.3%.

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Impact of AI on Tech Companies

The impact of AI on tech companies is significant, with 22-45% of revenues for leading Indian IT firms facing meaningful pricing deflation. However, this is not a binary call, and writing off the sector entirely would be premature. Indian IT firms are deeply embedded in enterprise technology workflows, and AI represents a $300-400 billion opportunity in enterprise AI integration, where Indian companies have a structural advantage in delivery capabilities and client relationships. Retail investors should approach selectively, favouring companies with clear AI strategy, strong deal pipelines, and meaningful revenue diversification.

India's Growth Story

The India growth story is not fading, but rather undergoing a valuation and expectation reset after a period of exceptional re-rating. GDP growth for FY26 is estimated at 7.3% by both the IMF and the RBI, making India the fastest-growing large economy in the world. The Economic Survey projects nominal GDP growth of around 10% for FY27. However, markets are struggling to rally due to uneven corporate earnings delivery and global capital allocators' selectivity about risk.

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FII Trend

After sustained selling through much of FY25 and early FY26, valuations in Indian equities have corrected to more reasonable levels. The RBI's rate-easing cycle and the relative attractiveness of Indian risk assets have shifted the calculus for foreign investors. A correction in valuations and a more constructive earnings trajectory are expected to attract foreign investors in the coming months.