RBI Commentary May Remain Defensive Amid Oil Price Risks

India's Market Outlook: Foreign Investors' Concerns and RBI Commentary

The Indian stock market has seen a slight dip in prices, with valuations now ranging from 20-22 times FY27 earnings estimates (down from peak 27-28x). However, foreign investors remain cautious, viewing India as expensive compared to other countries like Taiwan, Korea, or China. According to Akhil Bhardwaj, Senior Partner and founder of Alpha Capital, this perception persists despite the RBI's efforts to maintain a neutral stance and defend the rupee.

Resilient Credit Growth and Government Support

In the current market environment, sectors like private banks, consumer companies, and infrastructure will benefit from resilient credit growth, rural recovery, and government infrastructure push. However, Bhardwaj is cautious about metal and IT companies, which are heavily dependent on global events.

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Foreign Institutional Investors' Concerns

Foreign investors are being careful due to global uncertainty and concerns over sustained FII outflows (Rs 2.2 lakh crore + YTD 2026, far exceeding full-year 2025). The absence of a compelling "Artificial Intelligence Play" in India is also a concern. Until earnings growth re-accelerates convincingly above 12-15 percent or valuations compress further toward 18x, the "not cheap enough" narrative is likely to persist.

Economic Growth Estimates and RBI Commentary

The RBI's economic growth estimates for FY27 have been revised downward to 6.9 percent (from prior expectations of around 7.2-7.5 percent). The April 2026 RBI downgrade embeds higher oil prices and problems with trade between countries. Bhardwaj expects the RBI to maintain a neutral stance and defend the rupee, with a slightly hawkish tilt on inflation risks.

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

Artificial Intelligence Capex Cycle

There is uncertainty around the sustainability of the artificial intelligence capex cycle, with global companies investing $500-600+ billion in 2026 capex (up around 50 percent YoY). Demand for compute continues to outstrip supply, and it is unclear if companies will be able to make money from this spending and if they will continue to invest at the same rate.

Rupee Stabilization and FII Inflows

The stabilisation of the rupee could encourage Foreign Institutional Investor inflows into India, but it is a necessity rather than a condition. A sustained move toward 93-94 would reduce hedging costs for FIIs and improve relative attractiveness versus other EM currencies.

RBI's June Policy Meeting

Bhardwaj expects the RBI to maintain a status quo on interest rates and maintain a neutral stance. The tone and forward guidance will be the key takeaway, with a slightly hawkish tilt on inflation risks, cautious language on growth, and hints on liquidity management and FX stability.

Q4FY26 Earnings and Risks

The earnings for Q4FY26 were modest and mixed, with Nifty PAT growth likely in the 4-8 percent range. However, if the West Asia crisis continues, it will be a big problem for companies in India, with potential 5-10 percent earnings downgrades for FY27.

Market Impact of West Asia Crisis

A prolonged West Asia crisis will have a significant impact on the market, with potential further 5-8 percent correction in Nifty, rupee to 97-99 levels, and earnings downgrades (5-10 percent for FY27). However, any credible de-escalation or supply reassurance could spark a sharp relief rally (10 percent+).