Perfect Storm Hits Indian Markets as Monsoon Falls 13% Short and West Asia Conflict Widens

Mumbai | October 14, 2026 

The Nifty 50 stood at 22,520 on October 9, 2026, down 6% since the start of the year, placing India among the weakest-performing major markets in 2026. Domestic demand has held up so far, with industrial output up 8.0% in August and goods and services tax (GST) collections up 7.7% in September. However, the latest India Strategy report expects demand growth to slow after the festive season. It does not see a quick, V-shaped recovery in markets and flags the risk of further declines before markets stabilise. 

How Weak Was the 2026 Monsoon? 

India’s 2026 monsoon season ended with a 13% rainfall deficit, which makes it a drought year. Seventeen of 36 meteorological subdivisions, covering 42% of the country’s area, received deficient rainfall. Reservoir water levels were 21% lower than last year as of September 24, and sowing of kharif (summer) crops was 2% lower year-on-year as of August 14. 

The rainfall deficit by region was as follows: 

• East and Northeast India: 26% 

• South Peninsula: 24% 

• Northwest India: 6% 

• Central India: 3% 

Why Is Inflation Rising Again? 

Consumer price index (CPI) inflation rose to 4.8% in August 2026 from 4.5% in July, led by higher food and fuel prices. Food makes up about 40% of the inflation basket. Renewed conflict in West Asia has pushed Brent crude back to about USD 100 a barrel, up 40% from its July lows. 

Other price increases since July include: 

• Sugar: up 11.8% 

• Global skimmed milk powder price index (Netherlands): up 21.3% to EUR 342 per 100 kg 

• Steel: up 10.7% to ₹63,900 per tonne since the end of July 

A September assessment put the probability of a very strong El Niño at over 90% for the northern hemisphere autumn and winter of 2026–27. 

What Did the RBI Change in Its Policy? 

On October 7, 2026, the RBI’s Monetary Policy Committee (MPC) unanimously raised the repo rate by 25 basis points to 5.50%, its first increase since February 2023. The repo rate is the rate at which the RBI lends to banks. The central bank also changed its policy stance from neutral to calibrated tightening. 

The US Federal Reserve also raised rates by 25 basis points on September 16, 2026. More than 30 central banks have now raised rates by between 25 and 200 basis points. 

How Much Have Foreign Investors Sold? 

Foreign institutional investors (FIIs) have sold a net ₹2,80,900 crore of Indian shares so far in 2026, the highest figure on record. Over the last 45 days, FIIs sold ₹55,200 crore, while domestic institutional investors (DIIs) bought ₹1,26,900 crore. 

• US Treasury yields are at their highest since 2007, with the 10-year yield at about 5.3%. 

• The gap between Indian and US 10-year bond yields is at a 10-year low. 

• Measured in US dollars, Nifty 100 returns have grown 1.2% a year over the last five years. 

Outlook: What Do the RBI’s Projections Show? 

The RBI raised its growth forecast for the financial year ending March 2027 (FY27) after gross domestic product (GDP) grew 7.8% in the April to June quarter. It also raised its inflation forecast and expects headline inflation to average nearly 5.8% over the next three quarters. The RBI named the weak monsoon, El Niño conditions and global uncertainty as key risks to farm growth and rural demand. 

Read the full report on India’s market outlook: India Strategy Report 

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