SEBI Annual Report: Domestic Growth to Cushion Indian Markets Against Global Risks
India’s financial markets are expected to remain supported by resilient domestic economic fundamentals in 2026-27, even as heightened geopolitical uncertainty, elevated commodity prices, and volatile foreign capital flows continue to present headwinds, according to the Securities and Exchange Board of India (SEBI) in its Annual Report 2025-26.
What Happened
In its Annual Report 2025-26, capital markets regulator SEBI noted that the Indian economy demonstrated resilience during 2025-26 despite an adverse international backdrop. Real gross domestic product (GDP) growth reached an estimated 7.7 per cent in 2025-26, accelerating from 7.1 per cent in the prior year.
This performance was driven by robust domestic demand, government capital expenditure, and a strong services sector. Private consumption and investment formed key pillars of this expansion, contributing 56.7 per cent and 31.9 per cent to nominal GDP, respectively. However, Indian equities experienced a challenging year in 2025-26, with the Nifty 50 and broader indices dropping roughly 14 per cent in US dollar terms due to sustained foreign portfolio investor (FPI) outflows, currency depreciation, high valuations, slower earnings growth, and geopolitical conflicts in the Middle East.
Key Highlights
- Growth Outperformance: The International Monetary Fund (IMF) projects India’s economy to grow at 6.5 per cent in 2026-27, exceeding the global growth forecast of 3.1 per cent.
- FPI Outflows vs DII Support: Record FPI equity outflows reached USD 19.7 billion during 2025-26, but strong domestic institutional investor (DII) inflows, notably from mutual funds, provided a critical market cushion.
- Key Risk Factors: Crude oil prices remaining above USD 100 per barrel and an extended Middle East conflict threaten to widen the current account deficit and elevate inflation.
- Macro Stability Measures: Strategic petroleum reserves, import diversification, and targeted fiscal support remain essential tools to manage external risks.
- Emerging Opportunities: The ongoing restructuring of global supply chains could unlock fresh investment avenues for the country.
Why This Matters
SEBI’s assessment indicates that while India’s domestic economic footing—marked by fiscal consolidation, healthier corporate balance sheets, improving inflation dynamics, and steady domestic institutional inflows—positions it to outperform global peers, market trajectory will stay heavily dependent on external factors. Global energy price movements and geopolitical developments will directly influence foreign investor flows and the broader financial markets.
What to Watch Next
According to SEBI’s analysis, the most crucial near-term triggers for a rebound in foreign capital flows include a sustained resolution of the Middle East conflict and the normalisation of global energy prices. Market stability will also depend on the execution of import diversification strategies and the management of strategic petroleum reserves.
Frequently Asked Questions
What were the main drivers of India’s GDP growth in 2025-26?
According to SEBI’s report, real GDP growth of 7.7 per cent was supported by strong domestic demand, state capital spending, and a robust services sector, with private consumption and investment accounting for 56.7 per cent and 31.9 per cent of nominal GDP, respectively.
Why did Indian equities fall during 2025-26?
The Nifty 50 and broader indices declined approximately 14 per cent in US dollar terms due to large foreign portfolio outflows totaling USD 19.7 billion, rupee depreciation, elevated valuations, slower earnings expansion, and the Middle East conflict.
What is the growth projection for India in 2026-27?
The report cited the IMF’s projection of 6.5 per cent economic growth for India in 2026-27, compared to an estimated global expansion rate of 3.1 per cent.
Source: Securities and Exchange Board of India (SEBI) Annual Report 2025-26 via ANI reporting.