Market Outlook Uncertain in H2 FY27: Fund Manager Cites Potential Counterbalance to Foreign Investor Selling

Market at New Highs in H2 FY27: Green Portfolio PMS Co-Founder

The market's prospects for new highs in the second half of FY27 are looking increasingly likely, according to Divam Sharma, Co-Founder and Fund Manager at Green Portfolio PMS. In an interview to Moneycontrol, Sharma highlighted the significance of domestic liquidity as a structural force driving market trends.

Sharma's assessment of the West Asia conflict situation suggests that a clean resolution is unlikely in this calendar year. However, a US tactical disengagement is more probable, which the market will interpret as a green light, even if the underlying conflict remains unresolved. The oil price outlook remains uncertain, with Brent crude prices unlikely to return to the $60-70 a barrel range in this cycle. Instead, the world is bracing for a new normal of $100 plus crude even after the war ends, driven by structural factors.

The Strait of Hormuz crisis has become a structural issue, rather than a headline-driven event. Flows through the Strait have collapsed from 20 million barrels a day to under 4 million, and Brent crude prices have remained above $100 a barrel despite the IEA releasing 400 million barrels of strategic reserves.

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The key variable to track is the US's military disengagement, which will reset risk premia globally. Until then, market participants will remain cautious, and every tanker incident will become a market event.

Sharma also highlighted the significance of the Pakistan mediation track, which has effectively collapsed. The cancellation of the Kushner Witkoff visit to Islamabad indicates where that channel stands. Both Iran and the US are bleeding economically, but their pain functions are very different.

Our base case is that Israel-Iran exchanges will continue at low intensity for some time, while the US engineers an off-ramp ahead of the midterms due to the domestic cost of $100 plus crude being politically untenable. A clean resolution is unlikely in this calendar year, and what is likely is a US tactical disengagement, which the market will treat as a green light even if the underlying conflict remains unresolved.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

The recent downgrades of India by global brokerages are real, but the framing is misleading. India has slipped from 4th to 6th in nominal dollar GDP rankings primarily due to the rupee touching roughly 95 to the dollar, which is an FX translation story, not a real growth story. OPEC still holds India's 2026 GDP growth at 6.6 percent, among the highest of any major economy globally.

The deeper point is that global capital is now repricing every emerging market based on a single question: can you secure access to critical resources through a chokepoint-driven decade? India scores well on demographics and demand, but until our energy sourcing is visibly de-risked, foreign money will stay on the sidelines and deploy slowly rather than aggressively.

New highs in H2 FY27 are very much on the table, driven by domestic liquidity. DIIs have absorbed over Rs 33,800 crore of selling in April alone, against FIIs pulling out roughly Rs 44,200 crore. SIP flows have shown no fatigue even at index lows. Once the war risk premium normalises and FII outflows pause, the pent-up DII firepower combined with returning foreign flows can take the indices to fresh records.

However, earnings growth expectations for FY27 are being trimmed toward the 8-10 percent band due to disruptions caused by the conflict. Some Middle East refineries have suffered medium-term capacity damage, insurance and freight costs are structurally higher, and elevated input costs will compress margins across energy-intensive sectors.

The sectors that are expected to print double-digit earnings growth include banks, defence, capital goods, and select consumption names, which will also concentrate alpha through the year.

Crude prices are unlikely to return to the $60-70 a barrel range in this cycle. The world is bracing for a new normal of $100 plus crude even after the war ends, driven by structural factors such as damaged refining capacity in the Gulf, permanently elevated war risk insurance premiums, OPEC discipline reasserting itself after the IEA reserve release, and a chokepoint that the market has now learnt is contestable.

Domestic liquidity is undergoing a structural shift, with domestic capital becoming the primary driver of market trends. In a world where geopolitics has displaced macro as the primary market driver, domestic capital, which is sticky, SIP-anchored, and benchmarked to long-duration Indian goals, will set direction over the next five to seven years.

Following the DII footprint, particularly mutual fund overweights and insurance allocations, is now a more reliable signal than chasing FII flows. IT stocks, which have been downgraded after the March quarter earnings, present a high-quality contra opportunity. Fundamentals are intact, valuations have compressed meaningfully, and the post-war geopolitical realignment will push European and Middle East enterprises to actively diversify their technology stack away from US-only providers, benefiting Indian IT.