Between Global Headwinds and Domestic Strength: India’s Markets Navigate Two Currents

Mumbai, 28^th September 2026: Motilal Oswal Private Wealth’s latest Alpha Strategist report for September 2026, titled “A Tale of Two Currents,” notes that the investment environment has become increasingly defined by a divergence between intensifying global macro headwinds and strengthening domestic fundamentals in India.

The report highlights that geopolitical tensions, higher crude oil prices, sticky inflation and rising global yields have moved back to the forefront. Brent crude crossed USD 100/bbl in September and reached around USD 108–109/bbl in mid-September, while long-term sovereign yields across major developed markets have risen to multi-year highs. The US Federal Reserve also raised its policy rate by 25 bps to 3.75–4% on 16 September, its first hike since 2023, as inflation remained above its 2% target. Rising yields are likely to put pressure on equity valuations.

Against this backdrop, India’s domestic current remains considerably stronger. Q1FY27 real GDP growth accelerated to 7.8% YoY, supported by manufacturing, consumption, investment and services. Private consumption grew 7.1%, while gross fixed capital formation rose 11.9%. Corporate earnings have also strengthened, with Nifty 50 profits growing around 18% YoY in Q1FY27, while Mid and Small Cap earnings continued to surprise positively. The MOFSL Universe recorded an upgrade-to-downgrade ratio of 1.5x, its highest in 22 quarters.

However, the report notes that stronger earnings do not automatically imply a broad-based market re-rating. Domestic inflow remains supportive, but it is increasingly being absorbed by a growing pool of IPOs, block and bulk deals, promoter sales and other equity supply. IPOs alone raised approximately ₹46,000 crore between April and August FY27, while the potential IPO pipeline remains substantial. This makes stock and sector selectivity increasingly important.

Motilal Oswal Private Wealth therefore maintains a Neutral view on equities, while retaining its overweight position in Mid & Small Caps. The recommended portfolio allocation remains unchanged at 40% Hybrid/Large Caps, 10% Global Equities and 50% Mid & Small Caps. The firm prefers lump-sum deployment in hybrid strategies, while recommending a staggered approach for pure equity strategies, with sharp corrections used to accelerate allocations.

On valuations, the Nifty 50 is currently trading at 18.3x 12-month forward earnings, around 12% below its historical average of 20.9x. Mid and Small Caps continue to trade at premiums to their respective 10-year averages, although these premiums have moderated from September 2024 levels. The report consequently sees a market that is neither sufficiently cheap to warrant aggressive buying nor expensive enough to turn outright cautious, reinforcing the need to identify the right sectors and businesses rather than rely on broad market beta.

On fixed income, Motilal Oswal Private Wealth believes higher-for-longer yields are becoming the new normal. The Indian 10-year G-Sec yield has moved higher towards 7%, with the yield curve steepening amid elevated crude prices, global monetary tightening expectations and inflation risks. The firm therefore continues to prefer accrual strategies over duration, with a focus on private credit, high-yield NCDs and income-generating assets such as InvITs, alongside liquid alternatives such as arbitrage and debt/arbitrage-oriented SIFs.

On precious metals, the firm maintains a neutral stance overall, with Gold preferred over Silver. Gold delivered a 13% USD return in August, ending the month at around USD 4,563/oz, while global gold-backed ETFs attracted approximately USD 18 billion during the month. Central-bank demand remains an important structural support, with China adding 20 tonnes of gold in August and extending its buying streak to 22 consecutive months. Silver, meanwhile, continues to benefit from structural industrial demand but remains more sensitive to the economic cycle and price-driven substitution.

Sandipan Roy, Chief Investment Officer, Motilal Oswal Private Wealth:
“India’s investment landscape is increasingly being shaped by the contrast between a challenging global backdrop and strengthening domestic fundamentals. With growth broadening across consumption, manufacturing and investment and earnings upgrades gaining momentum – the highest in 22 quarters, the opportunity is increasingly about being selective rather than simply increasing market exposure. We continue to see merit in Mid and Small Caps, while maintaining discipline on valuations and preferring accrual strategies in fixed income as global yields remain elevated.”

(Disclaimer: The information provided here is investment advice only. Investing in the markets is subject to risks and please consult your advisor before investing)

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