Rising Inflation, Super El Niño, Geopolitical Risks to Weigh on Markets; NIFTY Target at 27589

Mumbai, 13th October 2026: PL Capital, one of India’s most trusted financial services organisations, in its latest India Strategy Report titled “The Perfect Storm: Rising Macro and Geopolitical Risks,” believes that escalating geopolitical tensions, rising inflation, deficient monsoons and higher interest rates are likely to keep Indian equity markets under pressure in the near term. While domestic economic growth and corporate demand have remained resilient, the brokerage cautions that mounting macroeconomic headwinds could weigh on consumption, earnings and foreign investor flows. PL Capital has revised its 12-month NIFTY target to 27,589 from 27,133 earlier, while expecting markets to remain volatile and potentially move lower before entering a consolidation phase.

According to report, the NIFTY is down by 8.2% during the last six weeks and 6% year-to-date, thereby making India one of the weakest performing economies among the major economies of the world. This is primarily due to continuous selling by foreign institutional investors (FIIs) on account of fears relating to the effect of inadequate monsoon rains, rising cost of crude and agricultural commodities, high bond yields, and the growing Iran-US conflict, which has now spilled into the broader Middle East region. PL Capital believes that such a scenario may increase uncertainty in the stock market.

Regarding earnings, PL Capital expects sales growth of 16.2% and EBITDA growth of 14.7% on YoY basis in 2QFY27 without Oil & Gas. In terms of coverage universe, the brokerage firm is forecasting sales growth of 24.1%, EBITDA growth of 10.4% and Profit before Tax growth of 8.6%. On the contrary, the pressure from cost side of the business is rising with 16 out of 27 industry segments showing lower EBITDA margins. As highlighted by PL Research, firms are gradually starting to face the brunt of higher-cost inventories which were purchased during the period when crude oil and other input costs were high.

The report cites the poor monsoon and the possibility of a very strong El Nino as the risks to inflation and consumption. The monsoon season of India finished with a 13% deficit in rainfall, which is seen in 17 out of 36 meteorological subdivisions, accounting for 42% of the country’s total geographical spread. The water reservoirs also stood at 21% lower than the levels last year, putting soil moisture and the coming Rabi crop season in danger. PL Capital suggests that the effects might not be restricted to the domestic agriculture alone, as the El Nino-induced climate disruptions around the globe might affect the production of agriculture produce like soybeans, coffee, cocoa, and palm oil. Given that food accounts for around 40% of the inflation basket of India, high prices of agricultural commodities can maintain the level of inflation.

Monetary policy support to growth is also becoming less favorable. The RBI increased the policy repo rate by 25 basis points to 5.50%, which was its first rate increase since February 2023, and the RBI changed its monetary policy stance to “Calibrated Tightening”. The RBI revised its inflation forecast for FY27 to 5.2%, with inflation seen at 6.0% in Q3FY27 and 5.7% in Q4FY27. PL Capital feels that continued high oil prices, inflation in agriculture commodities, and supply chain disruptions might cause sustained inflation pressure, with further chances of more rate increases based on the inflation-growth trajectory. Higher interest rates, along with higher prices of essential and discretionary items, may dampen consumer spending momentum after the festivals.

In regard to global capital flow, PL Capital indicates that increasing interest rates in the bonds of many countries make Indian shares unattractive to international investors compared to others. US treasury bills have a return rate of 5.3%, while NIFTY 100 index returns have grown by only 1.2% on average over the last five years. PL Capital argues that the lack of participation in emerging technologies like semiconductors and artificial intelligence among others may limit the ability of international capital to come into India. Geopolitical instability, high oil prices, and low domestic consumption may make FII flows volatile.

Taking into consideration market valuations and the earnings outlook, PL Capital has set its 12-month NIFTY target at 27,589, based on its September 2028 earnings estimates and a valuation at a 12% discount to the index’s 15-year average price-to-earnings multiple of 19.2x. The NIFTY is currently trading at 15.5x one-year forward earnings, representing a 19.3% discount to its 15-year average valuation. However, the report cautions that attractive valuations alone may not trigger an immediate recovery, as further earnings downgrades and weakening demand could weigh on market sentiment. In its bear-case scenario, PL Capital estimates a NIFTY target of 22,044, reflecting the possibility of further downside before market consolidation.

PL Capital remains overweight in sectors such as Capital Goods, Healthcare, Banks, Metals, Financials, Telecom, and Ports, but underweight in Automobiles, IT Services, Consumer, and Oil & Gas from a sectoral point of view. Despite the fact that the company sees opportunities in sectors that are driven by domestic investments and credit growth, it is also important for them to consider stock-picking since the market is currently undergoing significant correction. Furthermore, the momentum of demand is expected to become uneven within different consumer groups, with premium brands being more resilient to inflationary pressure.

Commenting on the report, Mr. Amnish Aggarwal, Co-Head – Institutional Equities, PL Capital, said, “Indian equity markets are facing a challenging combination of rising inflation, geopolitical uncertainty and tightening financial conditions. While domestic economic activity and corporate demand remain resilient, the impact of deficient monsoons, a potentially strong El Niño and elevated commodity prices could weigh on consumption and earnings in the coming quarters. Higher global bond yields and relatively subdued dollar-adjusted returns are also likely to constrain foreign investor flows. Although valuations have become more attractive following the recent correction, we do not expect a V-shaped recovery and believe markets could see further weakness before consolidating. In this environment, investors should remain selective, focusing on companies with strong fundamentals and sectors supported by domestic investment and structural growth opportunities.”

(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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