The Strait of Hormuz could determine whether India’s equity market stages a sustained recovery in the second half of 2026, with a prolonged disruption threatening to push the Nifty 50 towards 23,000, while a normalisation in oil flows could trigger a sharp return of foreign capital, Axis Securities said.
The brokerage has identified crude oil as the key transmission channel from the Middle East conflict to Indian equities. A renewed escalation that pushes Brent above $100 a barrel could raise inflation, widen India's current account deficit, weaken the rupee and reduce the Reserve Bank of India's room to support growth. Higher oil prices could also hurt foreign investor sentiment and corporate margins.
The Strait of Hormuz was the defining macro risk for markets in the first half of 2026. Brent rose from around $65–70 a barrel at the start of the year to a peak of $113.63 on May 4 as the conflict intensified and fears of disruption to oil supplies grew. Oil subsequently cooled to the $70–80 range as tensions eased, helping reduce market volatility.
For India, the impact went beyond crude prices. Axis estimates that foreign portfolio investors pulled Rs 2.25 lakh crore out of Indian equities during the first six months of 2026. The brokerage said the sequence was clear: rising Hormuz risk pushed crude higher, increasing India's import costs and inflation concerns, which in turn made Indian assets less attractive to foreign investors.
Hormuz reopening could bring back foreign money
A reopening of the Strait could therefore have a direct bearing on market flows.
In its bullish scenario, Axis expects Rs 1.42 to 1.89 lakh crore of potential FPI inflows over three to four months after Hormuz reopens. It expects the return of foreign capital to support a re-rating of Indian equities.
Under this scenario, the brokerage sees the Nifty 50 reaching 28,615 by December 2026, based on a 20.5-times price-to-earnings multiple. It assumes a ceasefire holds, Hormuz fully reopens, Brent falls to $70 to 80 a barrel, the US Federal Reserve cuts rates by 25 basis points and the monsoon remains above normal.
Its base case is less aggressive. Assuming Hormuz reopens, Brent settles at $80–90 a barrel and the RBI cuts rates once in the second half, Axis sees the Nifty at 27,200 by December, with FY27 earnings growth of 12 to 14%.
Prolonged disruption could reverse the recovery
The downside is considerably sharper if the oil shock returns.
Axis sees the Nifty falling to 23,030 by December 2026 in its bearish scenario if the Hormuz disruption persists and earnings disappoint. Its assumptions include Brent staying at $110 to 120 a barrel or higher, India's current account deficit widening beyond 3.5% of GDP and the rupee testing Rs 100 to the dollar.
Under this scenario, the brokerage estimates another Rs 50,000 to 80,000 crore of FPI outflows, although domestic institutions would absorb part of the selling. It recommends moving towards defensives such as pharma, FMCG staples and cash-generative IT stocks while reducing exposure to cyclicals.
That makes crude more than just another macro variable for the market. Axis sees oil as the link between the geopolitical conflict, India's external position, foreign flows and corporate earnings.
The brokerage said a sustained rise in crude could weaken the disinflation narrative, pressure the rupee and current account, constrain the RBI's policy flexibility and compress margins for oil-sensitive companies.
Market moves from geopolitics towards earnings
With oil prices moderating, Axis expects the market to gradually move from a macro-driven phase towards one led by corporate earnings. It expects stock-specific opportunities to become more important, with investors favouring companies with earnings visibility, strong cash flows, healthy balance sheets and consistent execution.
For the second half, the brokerage favours auto, financials and metals as cyclical recovery plays, while defence and energy/power remain its preferred structural themes. It remains cautious on FMCG and paints because of their exposure to crude-linked input costs, while IT remains dependent on a recovery in global technology spending.
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