Nifty Rally Faces Risks from West Asia Tensions and El Nino

Mumbai | 13 July 2026 

Nifty has rallied 7.3% over the past two months and nearly 8% from its 52-week low, driven mainly by a decline in crude oil prices to USD 70 a barrel and a ceasefire in West Asia. Indian markets have shown resilience through the period, with 1QFY27 demand trends staying steady even as global uncertainty persisted. 

What Is Driving Current Market Demand Trends?

Profit after tax grew 14% year on year in 1QFY27, excluding the oil and gas sector. Credit growth stood at 17.3%, reflecting the success in containing the impact of higher crude prices and supply chain disruptions on the broader economy. The FCNR bond issue is likely to lift credit availability in the system by 3% and support growth further. 

What Risks Could Affect Rural Demand and Inflation?

A rainfall deficit of around 10 to 15% in the first half of the monsoon season poses a risk to the outlook. A severe El Nino could push inflation higher and weigh on rural demand in the second half of FY27. Inflation is also expected to rise gradually because of a negative base for food inflation from June 2026 onwards, raising the probability of a shallow interest rate hike cycle from the second half of FY27. 

What Is the Earnings Outlook for Nifty Companies?

Nifty EPS estimates have been cut by 0.9% for FY27 and 0.4% for FY28, with projected EPS of Rs 1,332 for FY27 and Rs 1,532 for FY28. This implies a compound annual growth rate of 15.6% over FY26-28. 

Which Sectors Look Well Placed, and Which Don’t?

Banks, NBFCs, capital goods and defence, telecom, jewellery, hospitals and consumer durables have a positive outlook. IT services, exports, cement, chemicals and oil and gas remain areas of caution. 

Outlook

The current phase carries elevated uncertainty and markets are likely to stay volatile. With the risk of renewed hostilities in West Asia and a rising probability of El Nino, a cautiously optimistic, stock specific approach is favoured over broad market bets. Stay updated on Indian equity and commodity market on PL Capital .  

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