Nifty Expected to Remain Range-Bound Between 23,500 and 24,500 in Near Term

India's Equities Defy Rising Oil Prices, but Risks Remain

India's reliance on imports for nearly 90% of its crude oil needs makes it vulnerable to rising global oil prices. Typically, this would strain corporate margins, the current account deficit, and the rupee. However, recent market trends have deviated from this pattern, with Indian equities showcasing better performance despite crude prices reaching an alarming peak of $126.

The domestic market's strong inverse relationship with crude prices has been disrupted, with the current market sentiment suggesting that higher crude prices may delay economic recovery, but are unlikely to derail it. This narrative has helped markets absorb external shocks more effectively. India's one year forward Price-to-Earnings (P/E) ratio stands at 18.5x, which is marginally below the 5-year average.

Key Drivers Behind Market Strength

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A key driver behind the market's strength has been the correction-led valuation reset. Following earlier bouts of volatility, Indian equities have entered a more reasonable valuation zone, encouraging investors to re-enter the market with a long-term perspective. The prevailing sentiment suggests that while higher crude prices may delay economic recovery, they are unlikely to derail it.

Supporting Factors

Supporting this resilience is the encouraging trend in Q4FY26 earnings and moderation in Middle East war risk. Early reporting companies have delivered marginally better-than-expected results. Notably, 119 companies from the broader Nifty 500 universe recorded a robust 12% YoY growth in net profit—one of the strongest growth rates in recent quarters. This performance has provided a fundamental cushion to equity markets, reinforcing investor confidence.

Sectoral Performance

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Sectoral, the earnings momentum of banking and financial services has been in-line with a mixed view due to good credit growth but a fall in Net Interest Margins (NIMs). Metals have benefited from rising commodity prices triggered by global supply disruptions. On the other hand, oil marketing and refining companies have emerged as laggards, with major players reporting a decline in profitability due to margin pressures linked to volatile crude dynamics.

Investor Sentiment

The recent correction has been utilized to accumulate domestic-oriented sectors where earnings visibility remains strong. Banking continues to be a preferred segment, supported by healthy balance sheets, stable credit growth, and improving risk-reward dynamics, especially in large private sector banks. Capital goods, manufacturing-linked businesses, and select consumer discretionary stocks have also attracted incremental flows, especially from domestic investors, driven by structural growth drivers and robust demand outlook. Consumption-based sectors like Auto and FMCG have also done well due to demand in products.

Challenges Ahead

However, the IT sector presents a relatively muted near-term outlook. While valuations have corrected and balance sheets remain strong, growth visibility is constrained by global macroeconomic uncertainty and cautious client spending. As a result, IT is increasingly being viewed as a gradual accumulation theme rather than a near-term outperformer, with stock selection playing a critical role.

Global Cues

Global cues continue to pose challenges. The US Fed's hawkish stance, keeping rates unchanged while signalling persistent inflation risks, has tempered expectations of rate cuts in 2026. Including chaos on Homruz, depreciation in currencies and constant rise in Japanese yield has implications for global risk and liquidity affecting capital flows into emerging markets like India.

Market Outlook

Despite these uncertainties, the broader market outlook remains constructive, albeit within a consolidation phase. With geopolitical risks still unresolved and inflation concerns lingering, markets are expected to remain range-bound in the near term, with the Nifty likely to oscillate between 23,500 and 24,500 levels, with a mixed bias. The risk associated with selling during a rally is particularly pertinent in the short term should the global crisis continue. Return expectations for FY27 have been moderated, with estimates suggesting a potential 8–12% upside from current levels, contingent on stabilization in crude prices and easing global uncertainties.