This is not just a correction; this is a rout. Over Rs 1.24 lakh crore was withdrawn in just March alone, the worst outflow in the history of Indian markets.
The energy squeeze
The major driving force has been the war in the Gulf. Brent crude prices have gone up by 51% in the past month to hit a four-year high of $119.50/barrel, after Iran closed the Strait of Hormuz.
With global brokerage Goldman Sachs forecasting crude to average $115/bbl through April, the import-driven Indian economy is facing a direct shock, fueling inflation, widening the trade deficit, and squeezing corporate margins.
All the importing countries in Asia are affected due to the rising oil prices, but the high FII outflows from India indicate that certain weaknesses were already in place.
Even when the first shots were not fired, investors were battling a weak rupee, weak earnings recovery, and high valuations, along with the US tariffs. The oil issue is simply the last catalyst.And the change in sentiment is now stark. With geopolitical risks increasing, the dialogue has now shifted from an ‘India premium’ to an ‘India exit’.
Brokerages hit the panic button
Global institutions are rapidly recalibrating. Goldman Sachs has lowered its target price for Nifty to 25,900 from 29,300 and has downgraded India to “market weight.” The global brokerage has also lowered its earnings growth estimates by 9 percentage points cumulatively for CY26/27 to 8% and 13%.
Its models indicate that if oil prices remain $45 above average for three months, earnings growth could be down 9 per cent, a notion supported by history, where past oil shocks resulted in a 6-13 per cent downgrade.
The caution comes from many corners, and Bernstein, Citi, and Nomura are among those taking a more defensive stance, cutting targets and warning of a brewing earnings downgrade cycle.
ETMarkets.comThe most dire prediction comes from Bernstein, which says the crisis could trigger a ‘GFC-style’ scenario.
It has cut its target to 26,000 and a worst-case scenario of 19,000 on the Nifty index.
The fear is that of a macro-level shock: Inflation is soaring, and the RBI is forced to hike interest rates, resulting in a stranglehold on the economy, causing the GDP to grow at a rate of 2-3%, effectively a recession scenario for India.
The same scenario is also seen playing out by other brokerages, and they are just as alarmed. Even Citi has cut its target to 27,000 (from 28,500), and Nomura too has cut its target to 24,900 (from 29,300) and believes that a further 5% fall is a “distinct possibility.”
HSBC believes that every 10% move in oil results in a 1.3% fall in the markets, and currency weakness is also a factor.
India pays the bill
At its core, the problem stems from a simple structural fact: Unlike Brazil and Mexico, which are exporters and hence gain from a higher oil price, India loses out as it imports oil.
Clearly, the problem is especially painful for India and triggers what analysts call a classic ‘energy-led earnings downgrade’ cycle.
And while India is struggling to cope with the shock, the picture in the US and China paints a different story
US: Tech cushioning the blow
Despite a 5% drop in the S&P 500 since the war began on Feb 28, Wall Street has remained resilient. Brokerages are holding, and in some cases even raising, targets, betting that AI-driven growth and strong earnings will offset war risks.
Barclays has lifted its S&P 500 target to 7,650, while Citi sees 7,700 and Goldman holds at 7,600. The broader consensus around 7,500 signals that the US is still viewed as a growth engine capable of weathering $100+ oil.
China: The ‘green shield’ effect
China’s resilience is even more striking. Despite being the world’s largest oil importer, its markets have barely reacted, the CSI 300 is down just 4% since the conflict began.
This is because years of heavy investment in renewables and EVs have reduced dependence on fossil fuels, insulating the economy from oil shocks. Even with oil surging as much as 65%, the yuan remained stable and bond yields were contained.
As a result, Goldman maintains an “overweight” stance on China. Notably, no major brokerage has downgraded the market due to the conflict.
What FY27 could look like for India
Brickwork Ratings expects FY27 to have selective opportunities rather than broad-based rallies. Commodities are expected to do well due to infrastructure and geopolitical factors, equities will have headwinds due to global uncertainty and earnings, and debt will provide stability.
Kotak Institutional Equities also believes that “although the recent correction has been beneficial for risk-reward, valuations are high. Unlike March 2009 or 2020, when valuations were low and offered clear buying opportunities, the current situation is different. Long-term investors are advised to invest in a disciplined manner rather than hoarding cash.”
The contrast is stark. “If capital had been deployed into China, it would have been preserved. US markets will benefit from tech-driven growth. India is the most exposed market to an energy crisis, losing 1.3% for every 10% rise in oil prices and currency weakness.”
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
