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Informist, Wednesday, Oct. 7, 2026

 

By Eshitva Prakash

 

MUMBAI – Relentless selling of domestic equities by foreign investors is likely to keep the headline equity indices under pressure in October, analysts said. High crude oil prices, yields on US long bonds reaching multi-decade highs, and concern that the profitability of companies likely declined in the September quarter have weakened the argument in favour of investing in India, they said.

 

Foreign portfolio investors net sold Indian equities worth INR 358.61 billion in September. This was about 13% of their total net outflows so far in 2026 of around INR 2.85 trillion. Selling intensified sharply towards the end of the month, with over two-thirds of the monthly outflow concentrated in the last four trading sessions of September.

 

While retail companies have reported strong revenue growth in their September quarter updates, the increased costs of crude oil-linked inputs and higher freight rates are likely to affect profit growth across multiple sectors, analysts said. "To make a compelling case in front of FIIs (foreign institutional investors) to choose India over other high-return markets, corporate earnings growth has to withstand shocks for more than just a couple of quarters," a fund manager at a large domestic mutual fund said.

 

Adding to the risk, market participants have not fully priced in a steep rate hike cycle by the Reserve Bank of India. Many are still hoping the war in West Asia will end before commodity prices start running even higher, analysts said. Even if inflation is kept in check, a rate hike by the US Federal Reserve will force the RBI to raise benchmark lending rates to preserve the interest rate differential amid a weak rupee, they said.

 

Despite these macroeconomic concerns, technical analysts continue to expect that the Nifty 50 will move in a range. However, this has more to do with the 6% correction in the index in September, which the technical analysts expect will result in some value-buying. There is also an expectation that earnings growth will positively surprise market participants, as the June quarter results had done.

 

The Nifty 50 is likely to find support at 22100 points and then at 21740 points, according to a median of estimates from 11 brokerages polled by Informist. These levels are over 2% and 4% lower than the Nifty 50's closing level Wednesday. On the higher end, the Nifty 50 will face resistance at 23200 points and then at 23500, according to the median of estimates. Wednesday, the Nifty 50 ended at 22603.05 points.

 

MARGIN PRESSURE

Despite high sales growth, driven partly by price hikes, the profitability of companies is likely to have come under pressure in the September quarter, analysts said. Companies are likely to see a gross margin impact of 50-75 basis points in the quarter, Chokkalingam G., founder, Equinomics Research Pvt. Ltd., said.

 

Margin pressure in the December quarter will be higher than in the September quarter as crude oil prices have remained over $100 per barrel for longer than had been estimated, Chokkalingam said. The weak monsoon will only add to higher inflation and lower rural demand. "These factors will lead to some additional pressures on margins, which could fall by about 100 bps as compared to the September quarter," the analyst said.

 

The poor monsoon is likely to have an impact on rural demand, which could hurt sales of automobile and other consumer-discretionary companies, analysts said. The south-west monsoon season, which lasts from June to September, has concluded with a rainfall deficit of 12.6%. Droughts in several parts of the country are a major obstacle to domestic growth. This is likely to also exert some pressure on broader market indices, Anita Gandhi, whole-time director at Arihant Capital Markets Ltd. said.

 

Companies in most sectors will pass on cost hikes to the end consumer, but demand will contract at various levels across all industries, which will lead to even more margin pressure due to rigid fixed costs and loss of benefits of economies of scale, analysts said.

 

Aviation, tyres, downstream oil companies, paints, and adhesives are among the sectors that will be affected significantly in the September quarter, Asutosh Mishra, head of research, institutional equity, at Ashika Stock Broking, said. According to Mishra, stocks of these companies will continue to be under pressure until crude oil prices relent.

 

Stocks of fast-moving consumer goods companies, once thought of as a defensive bet, will also be under pressure as investors rotate positions into sectors with inelastic demand such as pharmaceuticals, analysts said. "A shift towards premiumisation is likely, but this could lead to severe downtrading (in FMCG products) as well," Sunny Agrawal, head of fundamental equity research at SBICAP Securities, said. Larger companies will have more room to effect price changes across categories while smaller ones, which rely on volumes of fewer products, will take a hit to profit, Agrawal said.

 

Auto ancillaries and automobile companies have shown resilience with strong September quarter updates and some manufacturing companies in aerospace and precision engineering are also looking strong, a fund manager at a domestic brokerage said. "There are also select pockets of strength, like CDMOs (contract development and manufacturing organisations) and pharmaceuticals," he said.

 

WEAK LINKS

High US bond yields have increased the pace of selling by FIIs amid a sharp drop in the rupee since the war in West Asia started. Massive investment in artificial intelligence is driving the prospects of higher economic growth, while a high US debt amid rising crude oil prices reduces trust in sovereign securities. Taken together, these two factors drove US bond yields to multi-decade highs in September. As one fund manager at a large domestic mutual fund put it, if the US 10-year bond yield is near 5.5%, "then it doesn't make any sense to put money in India, especially with all this currency risk, even at a 7% G-sec (government securities) rate". This has had a negative impact on financial services stocks, as foreign investors have had a large presence in this sector.

 

The quarterly updates from banks point to healthy headline growth, but a large part of it is explained by business linked to the strong inflows through foreign currency non-resident (banks) deposits between Jun. 8 and Aug. 31, global brokerage Nomura said in a research report, after the central bank decided to shoulder the hedging costs for banks raising three- to five-year deposits. The brokerage pointed out that this business carries thinner spreads than core lending, so net interest income growth is likely to lag balance sheet growth in the September quarter. "Sector margins (will) stay under pressure in the near term, before easing by the December quarter as surplus FCNR(B)-led liquidity is deployed," it said.

 

Information technology stocks are also expected to be under pressure, primarily on concerns of weak earnings growth in an otherwise seasonally strong September quarter. Pricing pressure on contracts, soft mega-deal conversions, and no major demand uptick during the quarter will limit IT earnings, brokerages said.

 

INTEREST RATES

The US Federal Reserve's interest rate decision later in the month will likely inform the Reserve Bank of India's own interest rate trajectory, which some analysts expect to be a shallow hiking cycle. The main reason for tighter monetary policy is not inflation but to maintain interest rate parity with the US, analysts said. Wednesday, the RBI's Monetary Policy Committee raised benchmark lending rates by 25 basis points while also raising its inflation and growth projections.

 

"The RBI is likely to be cautious in hiking interest rates (going ahead)," Chokkalingam said. "Food inflation is a supply-side issue and hence rate hikes will be helpless." Oil prices could fall substantially if the US and Iran reach a resolution on the war in West Asia, which is a temporary issue, not a structural issue, he said. Hence, the RBI is likely to go slow in riding on the interest rate up-cycle, he said.

 

However, several analysts remain convinced that the RBI will raise rates further in the current financial year. "One more rate hike of 25 bps (basis points) is on the cards in 2026," V.K. Vijaykumar, chief investment strategist at Geojit Financial Services, said. "If inflation persists, two more hikes totalling 50 bps are likely in this rate hiking cycle."

 

High prices of fuel and increased artificial intelligence borrowing are contributing to high inflation in the US, which increases chances of the US Fed entering a steep rate hike cycle, which in turn will force the RBI to raise domestic lending rates. While Fed fund futures traders expect the Fed to keep interest rates unchanged in October, they continue to expect at least two more rate hikes by the apex bank by January.

 

BROKERAGE	Support 1	Support 2	Resistance 1	Resistance 2
Angel One	22100	21700	23300	23500
Globe Capital Market	22150	21740	23100	23500
ICICI Securities	21700		23000
IDBI Capital Markets & Securities	22200		23100	23500
Lakshmishree Investment and Securities	22150		22850	23000
LKP Securities	22000		22600	23000
Motilal Oswal Financial Services	22200		23200
Religare Broking	21700		23600
SAMCO Securities	22100		23800
HDFC Securities	22100		23200
Teji Mandi Investment Technologies	22200	22000	23500
Median	22100	21740	23200	23500

 

End

 

US$1 = INR 96.77

 

Edited by Rajeev Pai

 

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