West Asia Tensions and FPI Selling Weigh on Indian Equity Market Sentiment

The Indian equity market is likely to open on a cautious note amid fresh escalation of tension in West Asia, with massive selling by foreign portfolio investors (FPIs) and the weakening of the rupee continuing to hurt market sentiment, analysts said.

West Asia Tensions and FPI Selling Weigh on Sentiment

Ponmudi R, CEO of Enrich Money, said that investor sentiment remains cautious and highly sensitive to geopolitical developments, with the prolonged U.S.–Iran standoff, the rebound in crude oil prices, and continued foreign fund outflows shaping the near-term market narrative.

“While energy prices remain below their recent peaks, any further escalation in regional tensions or sustained foreign selling could weigh on risk appetite and increase downside risks. Conversely, meaningful progress on the diplomatic front would likely improve sentiment, support a recovery in risk assets, and provide greater visibility for markets navigating an uncertain global backdrop,” he added.

Market Sentiment Remains Cautious

The Nifty at 23,245 suggests that the Nifty may open with a gap down of over 200 points, indicating a cautious undertone in the market.

Valuations Offer Support Despite Near-Term Risks

• The Nifty is trading at a 12-month forward P/E of 18.6x, below its long-term average (LPA) of 21x, representing an 11% discount.
• The Nifty’s P/B of 2.7x represents a 5% discount to its historical average of 2.9x.
• The 12-month trailing P/E for the Nifty, at 21.5x, is below its LPA of 23.2x, representing a 7% discount.
• The 12-month trailing P/B ratio for the Nifty, at 3x, is below its historical average of 3.2x, representing a 4% discount.

Fiscal Position and Industrial Growth Remain Supportive

Aditi Nayar, Chief Economist, ICRA Ltd, said that the Government of India’s (GoI’s) fiscal deficit trailed the Revised Estimate (RE) for FY2026 by Rs. 0.4 trillion, aided by a Rs. 0.6 trillion expenditure cut, which more than offset the marginal miss on the receipts front.

This enabled the fiscal deficit to be contained at 4.4% of GDP in FY2026, in line with the fiscal target, notwithstanding the downward revision in nominal GDP prints.

Interestingly, the inflows on account of savings deposits and certificates and PPF exceeded the RE by Rs 1.0 trillion, higher than our expectations, leading to an increase in the cash balance of the GoI, as against the Rs. 457 billion drawdown that was envisaged as per the RE.

Derivatives Signal Cautious Undertone

From a derivatives perspective, the setup remains cautious, with the PCR standing at 0.49, indicating an oversold derivatives structure and heavy call-dominated positioning, according to Dhupesh Dhameja, Derivatives Research Analyst at SAMCO Securities.

Significant call open interest is concentrated in the 23,500–23,600 strike zone, creating a strong resistance band, while Put writers continue to defend the 23,000–23,200 region, establishing an important support base.

Key Takeaways

• The Indian equity market is likely to open on a cautious note amid fresh escalation of tension in West Asia.
• Valuations offer support despite near-term risks, with the Nifty trading at a 12-month forward P/E of 18.6x, below its LPA of 21x.
• Fiscal position and industrial growth remain supportive, with the Government of India’s fiscal deficit contained at 4.4% of GDP in FY2026.

FAQs

What is the current market sentiment?

Investor sentiment remains cautious and highly sensitive to geopolitical developments, with the prolonged U.S.–Iran standoff, the rebound in crude oil prices, and continued foreign fund outflows shaping the near-term market narrative.

What is the impact of FPI selling on the market?

Massive selling by FPIs and the weakening of the rupee continue to hurt market sentiment, with the Nifty at 23,245 suggesting that the Nifty may open with a gap down of over 200 points.

What is the current fiscal position of the Government of India?

The Government of India’s fiscal deficit trailed the Revised Estimate (RE) for FY2026 by Rs. 0.4 trillion, aided by a Rs. 0.6 trillion expenditure cut, which more than offset the marginal miss on the receipts front.

Conclusion

The Indian equity market is likely to open on a cautious note amid fresh escalation of tension in West Asia, with massive selling by FPIs and the weakening of the rupee continuing to hurt market sentiment.

Valuations offer support despite near-term risks, with the Nifty trading at a 12-month forward P/E of 18.6x, below its LPA of 21x.

Fiscal position and industrial growth remain supportive, with the Government of India’s fiscal deficit contained at 4.4% of GDP in FY2026.

Investors are advised to remain cautious and monitor market developments closely, as the market remains hostage to volatile developments arising from the West Asian crisis.

It is essential to have a diversified portfolio and maintain a long-term perspective to navigate the uncertain global backdrop.