Monthly Investment Outlook - September 2026

Indian markets corrected over the past month, despite strong corporate earnings and better-than-expected economic growth. Investors became more selective following the recent rally, while rising global bond yields and crude oil prices contributed to a more cautious market environment. This month, we discuss how these developments are shaping markets and how we are positioning portfolios in response.

Indian equity markets corrected over the past month, with the Nifty 500 declining around 2%. Despite a strong Q1 FY27 earnings season and better-than-expected economic growth, investors remain selective due to elevated valuations and the lack of an AI story. Globally, financial markets remained sensitive to rising global bond yields and increase in oil prices towards USD 100/barrel.

In fixed income markets, Indian government bond yields moved higher over the past month, with the benchmark 10-year government bond yield rising from around 6.7% to 7.0%. Higher crude oil prices and rising global bond yields weighed on domestic bond markets despite ample liquidity in the banking system.

India’s Q1 FY27 GDP came in strong despite a period of exogenous commodity and currency stress. Real GDP expanded by 7.8% YoY, above the RBI’s 7.0% projection and market expectations of approximately 7.1%. Growth was led by services, which expanded 10%, alongside stronger manufacturing and resilient investment activity. The recently concluded Q1 FY27 earnings season reinforced this resilience. Earnings growth exceeded expectations across a broad range of sectors, with financials, industrials and consumer-linked businesses delivering particularly strong results. Earnings revisions have continued to improve and should support medium-term corporate profit outlook.

Inflation continued to inch higher, with July CPI inflation rising to 4.5%, marking the ninth consecutive monthly increase. Food prices were the main contributor with a 5.2% increase. Core inflation increased by 3.9% but remains within the tolerance range of the RBI. Although inflation remained manageable, markets have started to focus on the trajectory of food prices due to deficient monsoon season as well as input cost pass-through.

Domestic investor participation remained supportive with continued increase in monthly SIPs. Foreign portfolio investors remained net buyers of Indian equities for the second straight month.

Source: Bloomberg,
Data: As of 4th September 2026

We remain constructive on Indian equities with preference for equities over fixed income in asset allocation. The pullback over the past month was on account of elevated equity valuations, rising global bond yields and higher crude oil prices rather than any deterioration in domestic fundamentals. Corporate earnings have exceeded expectations, GDP growth surprised positively at 7.8%, and foreign investors remained buyers of Indian equities through August. While geopolitical developments, energy prices and global interest rates continue to warrant monitoring, this has not altered our positive medium-term outlook for equities.

Within equities, our market-cap preference has changed from mid-caps towards small-caps. The recently concluded earnings season demonstrated broad-based strength across corporate India, with smaller companies continuing to benefit from improving profit margins and stronger earnings momentum. In contrast, mid-caps have outperformed for an extended period, and their relative valuation support has reduced. Large-cap fundamentals remain healthy, although earnings growth remains more moderate.

Within fixed income, our preference for shorter-maturity investments continues. As uncertainty around inflation, global interest rates and crude oil prices remains, shorter-maturity fixed income securities continue to offer an attractive balance between income generation and capital stability. However, we have reduced the extent of our preference for shorter duration fixed income since the longer maturity government bonds have started to provide some value around current levels.


Thank you for reading our September 2026 Investment Outlook. We look forward to sharing our latest market perspectives with you again next month.

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