Outlook for the Month of April’26

Economy Review

The key events in the month were –

Domestic Factors –

a) Trade Deficit – India’s February trade deficit almost doubled to $27 bn from $14.42 bn a year ago as imports rose 24.1% to $63.7bn, led by gold and silver. Whereas the merchandise exports fell for the first time in four months, by 0.8% YOY to $36.6bn.

b) Excise Duty on Petrol and Diesel – The government reduced excise duty on petrol to Rs 3/liter from Rs 13/liter earlier and on diesel to nil from Rs 10/liter earlier.

c) Natural Gas Control Order – The Indian government has issued a Natural Gas Control Order on 9th March’26, under the Essential Commodities Act to prioritize the supply of natural gas amid supply disruptions due to the closure of the Strait of Hormuz.

d) Currency – Indian rupee had breached the 95-per-dollar mark on geopolitical tensions in West Asia weighing on oil and gas supply disruption. RBI issued a net exposure cap ($100mn) on banks’ INR positions as a lever to manage currency depreciation.

Global Factors –

a) West Asia conflict – West Asia conflict has continued for over a month leading to disruption in oil and gas supplies as the movement of ships along the Strait of Hormuz remains constrained and major refineries and oil infrastructure in the Middle East has been hit.

b) Crude Oil – Brent crude oil prices remain elevated at over $100/bbl due to limited global oil inventory and force majeures by multiple refineries on the back of the West Asia War.

c) FED – US Fed kept interest rates unchanged at 3.5%-3.75%.

Domestic Macro Economic Data

Inflation – India’s CPI inflation increased to 3.2% in February’26 based on the new CPI series, driven by a sharp acceleration in food inflation, while core inflation remained steady at 3.4%. India’s WPI inflation increased to 2.1% in February’26 from 1.8% in January’26.

Outlook for Equities
The Indian equity markets declined sharply along with other global markets in March’26 due to the heightened global uncertainty on the back of West Asia conflict, rising crude oil prices and FII outflow. The Indian rupee had breached the 95-per-dollar mark and Brent crude oil remains elevated at over $100/bbl. Nifty declined 11.5% during the month. All sectoral indices were down and ended in red. Mid-cap and small-cap indices experienced a similar fall and declined 10.9% and 10.2% respectively.

West Asia conflict has continued for over a month leading to disruption in oil and gas supplies. IEA countries agreed to release 400mn barrels of oil from emergency reserves to address supply disruptions. On the domestic side, the government has reduced excise duty on petrol and diesel and imposed excise duty on diesel exports and on aviation fuel which will result in net revenue loss and likely hit on fiscal deficit to the extent of 0.2% of GDP. RBI issued a net exposure cap ($100mn) on banks’ INR positions as a lever to manage currency depreciation. FIIs sold $12bn worth of Indian equities whereas DIIs bought $8bn of equities during the month.

Nifty is currently trading at ~16x FY28e P/E. We expect Nifty earnings to grow at 13-15% CAGR over FY26-28. Investors can continue to invest in equities from a medium to long-term perspective. The key monitorable is the ongoing Middle East crisis and its impact on India’s macros and currency.

Outlook for Debt
Month of March was dominated by headlines on the Middle East war and brent oil prices. Consequently, inflationary pressures and higher current account deficit expectations began building in the system. Rupee depreciated by 3.5% against dollar during the month, closing March’26 at 94.35 while it touched its all time low at 95.21. Bond yields were not immune to the geopolitical as well as domestic pressures and these led to 10 year Gsec yield closing at 7.03%. Central government announced Gsec gross borrowings of Rs 8.2tn in H1FY27 which is 51% of the total FY27BE gross Gsec borrowings, lower against estimates. Borrowing mix in the longer tenor was reduced from 30% to 25% while short term borrowing was increased. Borrowing was also announced for Q1FY27 through T-bill at Rs 2.88tn. Center reduced special additional excise duty by Rs10/liter for both petrol and diesel. This move raised fiscal deficit concerns as Government will have to forgo revenue resulting in likely hit on fiscal deficit to the extent of 0.2% of GDP.

India’s goods trade deficit narrowed to $27.1 bn in February due to lower gold imports, while services trade surplus improved to $24.3 bn. Goods exports in February grew (-)0.8% YoY due to a sharp decline of 40% in oil exports. February CPI inflation continued the uptrend at 3.2% YoY with rising food inflation while core inflation remained steady at 3.4%. India’s wholesale price inflation rose to 2.13% YoY in February driven by higher prices in manufacturing, metals, food and textiles. IIP growth remained steady at 5.2% YoY in Feb-26 Manufacturing sector growth improved while electricity and mining slowed.

FOMC maintained status quo but stepped up its concerns on inflation. Policy statement incorporated the uncertainty posed by the ongoing conflict and inflation projections were revised higher. While the dot plot showed an unchanged guidance of 25bps cut in 2026, 7 of the 19 members voted for no change. Chairman stated that the committee had discussed the possibility that the Fed’s next move could be a hike while qualifying that a vast majority of participants do not see that as the base-case. US rates markets saw 10 year rising by 38 bps during the month to 4.34%. DXY gained on haven buying by 3% during the month. BoJ, BoE and ECB kept interest rates on hold. Rates futures markets have started pricing in possibility of rate hikes by central banks during the year. Brent oil prices climbed sharply by 56% during the month to $112.78/bbl.

In the near term, markets await resolution of middle east crisis, reaction to Gsec supply in H1, path of CPI data and government actions towards tackling the crisis. FPI flows, currency movement and oil prices will also be watched. Globally, labour market data from US, inflation data and global yields will be observed. 10-year Gsec closed at 7.03% on 30th March’26, 37 bps higher during the month. 10-year Gsec yield in the near term is likely to be in a range of 6.90%-7.15%. Spread of 10-year Gsec with corporate bond is near 60 bps and is likely to be in a range of 60-70 bps.