Sustained high oil prices could add 30–40 basis points to inflation, while FY27 growth is expected to moderate to 6.5–6.7%. Despite this, fiscal buffers such as RBI dividends help maintain stability.
Bajaj Finserv Asset Management Limited notes that while geopolitical tensions in West Asia and disruptions around the Strait of Hormuz drove volatility in March, the recent ceasefire is helping markets refocus on economic fundamentals.
India, which imports nearly 85% of its crude oil, saw heightened macro sensitivity amid rising oil prices. With easing tensions, crude and external balances are expected to stabilize, allowing domestic growth drivers to regain prominence.
Corporate earnings remain robust, with Nifty 500 profits growing 16% year-on-year in Q3 FY26, among the strongest in recent years. There could be near-term earning pressure due to West Asia conflict, but things are expected to normalize in the second half.
Global trade tailwinds—including a tariff agreement with the United States and an FTA with Europe—are set to support exports, aided by a depreciating Indian Rupee.
“In this environment, large-cap equities offer valuation comfort and relative stability in volatile conditions. At the same time, multi-asset strategies can act as effective shock absorbers amid geopolitical and commodity-driven uncertainty. Meanwhile, for small-cap exposure, a disciplined SIP approach is recommended to navigate near-term volatility,” says Sorbh Gupta, Head – Equity, Bajaj Finserv Asset Management Limited
Fixed income markets continue to be driven by the interplay of oil prices, geopolitics, and macro stability. Siddharth Chaudhary, Head of Fixed Income, Bajaj Finserv AMC, highlights that while oil remains central, risk to growth and contained core inflation give the RBI room to stay patient. “We believe fixed income markets are entering a phase where stability in yields will be driven more by domestic fundamentals than transient global shocks,” he says.
Recent oil spikes, with Brent crossing USD 100 per barrel, have pushed up inflation expectations, currency pressures, and long-end yields. In response, the RBI held the repo rate at 5.25% with a neutral stance, raising inflation projections while slightly trimming growth forecasts.
Sustained high oil prices could add 30–40 basis points to inflation, while FY27 growth is expected to moderate to 6.5–6.7%. Despite this, fiscal buffers such as RBI dividends help maintain stability.
“On the bond market, slowing growth is emerging as the dominant anchor for yields, reducing the likelihood of near-term rate hikes. The RBI’s focus is shifting toward liquidity management and stabilizing financial conditions rather than aggressive policy tightening. Hence, a measured duration strategy is preferred following the recent rise in yields,” adds Chaudhary.
Slowing growth reduces the likelihood of rate hikes despite elevated inflation. “The RBI’s focus is shifting toward liquidity, financial conditions, and forex stability rather than reacting mechanically to supply shocks. While oil and global volatility will drive near-term yields, domestic fundamentals argue against a sustained tightening cycle. After March’s sharp yield spike, a measured duration stance appears prudent,” says Chaudhary.
The outlook remains contingent on oil and geopolitics. Elevated prices and sustained tensions could keep volatility high, particularly at the long end of the yield curve. However, easing risks may quickly restore a supportive macro environment marked by stable inflation, adequate liquidity, and policy continuity.
In this evolving landscape, both equities and fixed income continue to offer opportunities for disciplined, long-term investors.
