Indian markets lag global peers as oil surge, rupee pressure cloud outlook: Report
Axis Bank report flags volatile capital flows, elevated borrowing costs and geopolitical risks as Indian equities underperform global markets
Indian equities are trailing global markets as surging crude oil prices, foreign investor outflows and currency weakness weigh on investor sentiment, according to Axis Bank's Global Markets | Markets Track report, which highlights mounting challenges for the country's financial markets.
The Nifty 50 stood at 22,600, down about 12.4 per cent from a year earlier, while the Sensex declined approximately 13.2 per cent. By comparison, the MSCI World Index gained 11.5 per cent and the MSCI Emerging Markets Index rose 13.6 per cent over the same period, based on the report's market-data tables.
The divergence underscores India's relative market weakness despite gains across global and emerging-market equities.
Also read: Foreign investors pull out Rs 13,138 cr from Indian equities in Sept after Jul-Aug inflows
Axis Bank's report, titled UST 10y yield dips on risk aversion, INR volatile, identifies a combination of global uncertainty and domestic vulnerabilities, with oil prices, foreign portfolio flows and interest-rate expectations likely to influence markets in the coming week.
Oil surge raises India’s economic risks
Brent crude rose to $116.72 a barrel, compared with $96.24 a month earlier and $63.61 a year earlier, according to the report. The India crude basket reached $119.99 a barrel.
The increase threatens to raise India's import bill, intensify imported inflation and put additional pressure on the rupee. Higher energy costs could also squeeze corporate margins and household purchasing power.
Analyst assessment: The interaction between oil prices, currency weakness and inflation is the central macroeconomic challenge. If elevated energy prices persist, they could constrain monetary-policy flexibility while weakening consumption and business profitability.
Rupee pressure and capital flows
The dollar traded at Rs 94.94, compared with Rs 87.85 a year earlier, representing an approximately 8.1 per cent depreciation in the rupee against the dollar.
The report describes volatile foreign portfolio investment flows and Reserve Bank of India intervention in the currency market. Its charts also show sharp fluctuations in one-month and three-month rupee forward premiums, indicating changing conditions in the currency hedging market.
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Cumulative foreign equity flows show substantial selling pressure over the year, although recent daily flows have been mixed. A few sessions of buying would not, by themselves, establish a sustained reversal.
The challenge is that currency weakness and equity outflows can reinforce each other, while higher oil prices increase demand for foreign currency.
Tight financial conditions
Indian government and corporate bond yields remain elevated. The report puts the 10-year government bond yield at 6.74 per cent, compared with 6.68 per cent a month earlier and 6.63 per cent a year earlier. The five-year overnight indexed swap rate climbed to 6.41 per cent from 6.04 per cent a month earlier.
The AAA-rated 10-year corporate bond yield rose to 7.61 per cent, from 7.44 per cent a month earlier.
Meanwhile, the report's liquidity charts show substantial fluctuations in RBI liquidity operations and domestic money-market conditions. Certificate-of-deposit yields have also increased across several maturities, suggesting higher funding costs for banks.
The report's US Treasury charts show the 10-year yield at 4.38 per cent, while the MOVE Index, a measure of Treasury-market volatility, rose to 108.84 from 68.03 a month earlier.
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The combination suggests that global risk aversion is supporting demand for safe-haven bonds, even as uncertainty remains elevated. Lower US yields do not automatically translate into lower Indian borrowing costs.
Gold retreats despite market uncertainty
Commodity charts show divergent performance. Gold fell to 3,996.10 in the report's quoted market-data units, from 4,343.43 a month earlier. Silver declined to 53.89 from 66.03.
Industrial metals also weakened: three-month aluminium on the London Metal Exchange fell to 3,043.50 from 3,267.00 a month earlier, while copper declined to 14,322.50 from 14,661.00.
The movements suggest that risk aversion has not benefited all commodities equally, while the sharp increase in crude oil prices remains the dominant concern for India.
Key highlights and challenges
Highlights
• Global equity markets have outperformed Indian benchmarks over the year
• US Treasury yields have eased amid risk aversion, although bond-market volatility has increased
• Indian government and corporate borrowing costs remain elevated
• Currency forwards and RBI liquidity operations reflect volatile domestic funding conditions
Challenges
• Higher crude prices threaten inflation, the current account and the rupee
• Foreign equity outflows risk prolonging domestic market underperformance
• Elevated bond yields could raise financing costs and pressure bond valuations
• Geopolitical uncertainty complicates global monetary-policy expectations
Central banks and oil in focus
Axis Bank identifies US Federal Reserve, European Central Bank and Bank of Japan decisions, alongside Indian fiscal and economic data, as important events for the week ahead.
The key market question is whether falling global yields can offset the pressure from expensive oil and fragile capital flows. A sustained decline in crude prices, stabilising foreign investment and stronger corporate earnings would improve the outlook. Without those developments, Indian equities, the rupee and domestic bonds could remain vulnerable to renewed volatility.
(Source: Axis Bank, Global Markets | Markets Track, October 26, 2026. Analytical commentary is an interpretation of the supplied report, not a direct quotation from a named analyst.)
