Market Watch

Equity Market Overview – September   2026



 

Domestic Equity Market Update

Indian equities ended the month on a negative note. Large cap-oriented BSE Sensex ended lower by 5.8% (MoM) and Nifty 50 ended lower by 6.1% (MoM). While the BSE Midcap index ended lower by 6.8% (MoM) and BSE Small cap index ended lower by 1.8% (MoM).

 

In terms of BSE sectoral indices, all the sectors ended on a negative note. IT, Consumer Durable and Auto were the laggards during the month.

 

During the month, FPIs were net sellers in equities to the tune of Rs 304 bn. (Data as on 29th September). 

Domestic equity markets ended the month on a negative note amid concerns over rising crude oil prices, FOMC rate hike, higher US Treasury yields, as escalating tensions in the Middle East weighed on investor sentiment.

Global Market Updates

US equity markets ended the month on a negative note as investors remained concerned over rising government bond yields, escalating geopolitical tensions in the Middle East and higher oil prices. The US Federal Reserve raised its key interest rate for the first time in more than three years to address persistently high inflation linked to surging crude oil prices owing to the conflict in West Asia which also dented investor sentiments.

 

European equity markets ended the month on a negative note as surging oil prices and heightened tensions in the Middle East fueled inflation concerns, weighing on investor sentiment. Investor sentiment also remained cautious, with market participants assessing monetary policy announcements.

 

Brent oil futures rallied from USD 90.49 per barrel to USD 103.53 as investors feared a higher risk of supply disruptions in the Middle East amid escalating tensions related to the US-Iran conflict. US President Donald Trump rejected an Iranian peace proposal aimed at ending the conflict also weighted the sentiment.

 

Most of the Domestic Macro data points showed a strong picture

Global agencies S&P, Fitch, Asian Development Bank (ADB) and OECD raised India's FY27 GDP growth projection to around 7% YoY, boosted by robust Q1 FY27 economic activity and resilient domestic demand despite conflict in West Asia.



The US Congress passed a legislation giving President Donald Trump sweeping new powers to impose punitive tariffs of up to 100% on major buyers of Russian energy products, including India. The legislation now awaits Trump’s signature.



According to data released by the Reserve Bank of India (RBI), India’s outward Foreign Direct Investment (FDI) rose 23.3% YoY to USD 3.8 bn in August 2026 from USD 3.11 bn in August 2025. Sequentially, it declined from USD 5.77 bn in July 2026.



The Reserve Bank of India (RBI) has backed the introduction of Merchant Discount Rate (MDR) on large-value UPI (i.e., above Rs 2,000) transactions, saying the move will help strengthen the long-term sustainability of India's digital payments ecosystem. It is an important step towards strengthening the long-term sustainability of India’s digital payments ecosystem.

 

Rating agency Icra said that state-run oil marketing companies are facing mounting losses on petrol and diesel sales as a surge in crude prices outpaces unchanged domestic fuel prices. Crude oil prices have risen sharply in recent weeks amid escalating geopolitical tensions and supply disruptions in West Asia. At these levels, the daily loss to the OMCs is estimated at Rs 5.3 bn.

 

Indian trade ​minister Piyush Goyal said that a free trade agreement between India and New Zealand, signed in April 2026, will come into force on October 20, 2026, as New Delhi seeks to ​boost exports and attract investment amid shifts in global trade.

 

According to data released by the Ministry of Commerce and Industry, output growth in India's nine core industries slowed to a three-month low of 4.8% YoY in August 2026, from a downwardly revised 5% YoY in July 2026, as a steep loss of momentum in iron ore and contraction in coal, oil, gas and fertilizer sectors put a drag on the headline number.

 

According to a report by CRIF High Mark, India’s Micro, Small and Medium Enterprise (MSME) credit portfolio rose 12.5% YoY to ~Rs 47.4 trillion as of June 2026, with lending increasingly concentrated in established industrial and trading clusters. Micro enterprises accounted for 84.4% of active MSME credit accounts, suggesting further scope for credit expansion and formalization.

 

The Commerce Ministry said that India's exports to the US increased by 21.83% YoY to USD 8.4 bn and to China by 52.35% YoY to USD 1.9 bn in August 2026. The inbound shipments rose 17% YoY to USD 12.77 bn from China and by 65.78% YoY to USD 5.97 bn from the US.

 

The Indian Construction Equipment Manufacturers’ Association (ICEMA) estimated the construction and infrastructure equipment exports to be 20,701 units in FY27, up from 17,396 units in FY26, despite geopolitical headwinds. Exports rose about 32% YoY, on a lower base.

 

As per ISMA, India’s rooftop solar market has potential to scale to 132 gigawatts (GW) from the current installed capacity of 17 GW, with annual demand expected to reach up to 15 GW by 2030.

 

The Solvent Extractors' Association of India (SEA) said that India’s soyoil imports hit a record in August 2026 as refiners stocked up for the festival season, while palm oil purchases reached a six-month high. Overall edible oil imports climbed to an 11-month high of 1.57 mn tonnes.

 

According to Federation of Automobile Dealers Associations (FADA) data, Electric PV retail rose 51.9% YoY to 30,696 units in August 2026 from 20,213 units a year earlier. Their share of overall PV retail increased to 7.6% YoY from 5.8% YoY in August 2025. Electric two-wheelers grew even faster, with registrations rising 67.1% YoY to 183,204 units from 109,628 units a year ago. EV penetration in the two-wheeler market increased to 10.7% from 7.7%.

 

Data from the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry showed that consumption of fuel, a proxy for oil demand, totalled 18.61 mn metric tons. Sales of gasoline, ‌or petrol, were 8.2% YoY higher at 3.84 mn metric tons. Diesel consumption was up 6.8% YoY and totaled 7.02 mn metric ​tons in August 2026. Cooking gas or liquefied petroleum gas (LPG) ‌sales decreased 17.2% YoY to 2.35 mn ​metric ‌tons.

 

According to a report by Naukri.com, India's white-collar hiring registered a 14% YoY growth in August 2026, driven by sectors including auto, healthcare and retail.

 

Business confidence among Indian companies rebounded to a three-quarter high in the ongoing Q2 FY27, with the Confederation of Indian Industry’s (CII’s) Business Confidence Index (BCI) rising 5.2 points to 66 from 60.8 in Q1 FY27.

 

According to latest data available from the statistics ministry, private corporations have invested Rs. 30.3 trillion in fixed assets such as plant, machinery and intellectual property in FY25, a 7% YoY jump from the capital expenditure they made in FY24.

 

According to the government data released, E-way bill generation rose 7.7% YoY to 139.08 mn in August 2026, the third-highest monthly count on record, signalling sustained momentum

 

Outlook & Investment Strategy

Going forward, the Indian equity market is likely to be supported by any moves around the final details pertaining to India-US trade deal, global bond yield movement, volatility in crude prices. Though spatial distribution of monsoons, rising concerns over AI-led disruptions, weakness in INR, remain a risk. The 2026 monsoon, which began with a significant rainfall deficit during its early phase before recovering in July and August, is now heading towards its final phase with the country still 12-13% below its long-period average which is also concerning. The strong 7.8% YoY GDP expansion in Q1 FY27 underscores continued economic momentum, and recent upgrades from key multilateral institutions further reinforce the constructive macro-outlook. Nevertheless, escalating geopolitical risks, which has pushed crude prices above the $100/barrel mark and rising bond yields globally, is likely to have negative sentimental impact on market and also impact the input cost for corporates.

 

Fund Managers expect Nifty 50 earnings to grow by ~10~12% YoY in FY27 and margin pressures are expected to creep up in Q2 FY27 as the benefits of low-cost inventory, available earlier, likely fades off.

The Valuations of Indian equity markets remain fair, with the Largecap indices trading below long-term averages, and Smallcap indices’ earnings growth potential supporting the premium multiples while Midcaps remain the expensive of the three. While some Fund Managers expect earnings divergence between NIFTY 50 and the broader market to continue, some feel this could converge. As liquidity conditions have improved, mid and small caps have seen re-rating the in last 5 months. While Nifty50 has remained in a range. A key risk for the market remains a slew of primary issuances and FPOs, which could suck the liquidity out of the secondary market. Another key risk is emerging in the form of higher bond yields, globally, which may drive the central banks to tighten monetary conditions. This, if implemented, could have negative implications on global asset markets.

 

Fund Managers who have been fairly nimble and identified growth ideas have generated alpha vs their peers. Market seems to be turning towards companies who can show consistent growth and is also willing to pay higher valuations for them. India’s relative underperformance vs. its peers and a depreciated Rupee is likely to make the Indian markets attractive for FPIs as and when they move out of AI-driven markets. Additionally, India has suffered on the back of being a non-AI trade but the recent call by founders of the leading AI model companies to slow the pace of development could reverse the investor interest back in India’s favour.

 

Given the emerging positives and negatives, investment deployment strategy could be 50% lumpsum and rest 50% to be staggered over the next 5 6 months. Mutual Fund investors can look at Mutual Fund schemes or categories which have higher allocation to Largecaps or focus on Hybrid funds. All allocations should be done in line with the risk profile and product suitability of the investor.






 

Debt Market Overview - September   2026

 


 

Banking system liquidity as measured by the Reserve Bank of India’s (RBI) net Liquidity Adjustment Facility (LAF) stood at a daily average surplus of ~Rs 7.78 trillion in August 2026 as against a daily average surplus of ~Rs 3.67 trillion in the previous month. The call money market traded in the range of ~4.35-5.25% during the month.

 

Indian G-sec yields rose during the month, driven by elevated global yields and inflationary pressures due to renewed US-Iran hostilities which pushed crude oil prices higher. This was compounded by the US Federal Reserve's 25 bps rate hike on September 16, 2026, which pushed global yields higher and strengthened expectations of a possible RBI rate hike in the October 2026 monetary policy meeting. Higher domestic inflation for August 2026 also added to these concerns. There was some respite for yields due to ample liquidity in the banking system on stronger-than-expected dollar inflows, and lower G-sec supply indicated in RBI’s H2 FY27 borrowing calendar.

 

The US Headline Consumer Price Index (CPI) for August 2026 recorded at 3.4% YoY, matching the previous month's reading. Core CPI for August 2026 cooled to 2.4% YoY in August 2026, down from 2.5% YoY in July 2026. The US Fed decided unanimously to raise the target range for the Federal Funds Rate by 25 bps to 3.75-4% in support of its dual mandate. This was the first time since July of 2023 that the Fed has raised interest rates. The Eurozone Harmonized Inflation rose to 3.2% YoY in August 2026 from 2.9% YoY in July 2026. Core Inflation eased to 2.4% YoY from 2.5% YoY in July 2026. The ECB Governing Council, led by President Christine Lagarde, hiked the benchmark deposit rate by 25 bps to 2.50%. The main refinancing rate was raised by a similar size to 2.65%, and the lending rate was lifted to 2.90%. The People's Bank of China (PBOC) maintained its key lending rates at record lows for a 16th consecutive month. The one-year Loan Prime Rate (LPR) was kept at 3.0%, while the five-year LPR remained at 3.5%. The Bank of Japan raised its benchmark rate by a quarter point to a 31-year high amid high inflation and a weaker Yen. The policy board decided by a 7-2 majority vote to raise the interest rate to 1.25%.

 

Consumer Price Index (CPI) based inflation for August 2026 accelerated further to 4.82% YoY (provisional), higher than the previous month’s (final) print of 4.45% YoY, on the back of further acceleration in food inflation, and an increase in the prices of Silver/Gold/Diamond/Platinum Jewellery, etc. India’s Wholesale Price Index (WPI)-based inflation rose to 9.92% YoY in August 2026, compared with 9.78% YoY in July 2026. India's Trade Deficit eased to USD 26.86 bn in August 2026 from USD 27.22 bn in August 2025 and USD 31.98 bn recorded in July 2026. The central government's Fiscal Deficit stood at Rs 7.1 trillion or 41.9% of full year FY27 target at the end of August 2026. The deficit was at 38.1% of Budget Estimates (BE) of FY26 during the corresponding period last year. RBI’s outstanding net short Dollar position in the forward book surged to a record USD 200.06 bn at August-end from USD 136.77 bn at July-end. The Centre’s net direct tax collection rose nearly 13% YoY to Rs 12.12 trillion as of September 17, 2026, supported by strong corporate tax receipts, healthy non-corporate tax and a sharp jump in Securities Transaction Tax (STT). India’s outward Foreign Direct Investment (FDI) rose 23.3% YoY to USD 3.8 bn in August 2026 from USD 3.11 bn in August 2025. Sequentially, it declined from USD 5.77 bn in July 2026.

 

The liquidity condition, as measured by RBI’s net LAF, improved and remained in surplus during the month. In its August 2026 MPC meeting, the RBI had kept the Repo Rate unchanged at 5.25% and continued with its neutral stance. They also revised the CPI inflation estimate for FY27 downwards to 5% YoY from 5.1% YoY previously and the GDP growth estimate upwards to 6.7% YoY from the previous estimate of 6.6% YoY. India’s CPI-based inflation or August 2026 accelerated further to 4.82% YoY (provisional), higher than the previous month’s (final) print of 4.45% YoY. The cumulative rainfall continues to remain below its long-term average. Going forward, El Niño’s impact on temporal and spatial rainfall distribution continues to remain a risk. The persistence of the same and volatility in energy prices on the back of the West Asia conflict has kept inflation across the globe under pressure and has also led to global central banks remaining hawkish, with some hiking rates further. The recent robust growth data has given RBI the space to look at hiking rates if required. The current spread at the mid-to-long end of G-sec yield curve seems to be factoring in hike in policy rates. In the US, the Fed hiked the target range for the Federal Funds Rate by 25 bps to 3.75-4.00% for the first time since July 2023. Going forward, as multiple global central banks have raised rates or sounded off hawkish outlooks and in the absence of any easing of crude prices and pressure on inflation thereof, market participants believe that RBI’s next Monetary policy decision may see them raising policy rates. In its H2 FY27 borrowing calendar announcement, the government cut its FY27 market borrowing target to Rs 15.99 trillion, below the budget estimate of Rs 17.20 trillion. Higher supply at the longer end (15+ years) should get absorbed by large institutional investors, while lower supply at the shorter end (5-10-years) should keep yields in check.

 

Thus, at this juncture, a case continues to exist for investment into Corporate Bonds that are at the 3-5-year segment of the curve as yields are lucrative. Hence, investors can look at Corporate Bond Funds and Short Term Debt Funds for a horizon of 15 months and above. For a horizon of 24 months and above, investors may consider Income Plus Arbitrage FoFs. As markets now anticipate a policy rate hike, hence for a horizon of 3 months and above, investors can consider Arbitrage Funds and Ultra Short Term Funds. Whereas for a horizon of up to 3 months, investors can consider Overnight Funds and Liquid Funds. Investors should invest in line with their risk profile and product suitability.

 

 

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