Indian equity markets witnessed a sharp correction during the last week, with selling pressure extending beyond benchmark stocks to mid-cap and small-cap segments. The Sensex declined 2.15% to 73,123.83, while the Nifty 50 fell 2.36% to 22,600. The BSE 150 Mid-Cap index dropped 5.41%, and the BSE 250 Small-Cap index declined 6.87%, indicating a more pronounced correction in the broader market. Investor sentiment remained cautious amid geopolitical uncertainty, rising crude oil prices and mixed corporate earnings. On the domestic front, economic indicators continued to show resilience. The IMF's growth outlook and the RBI's assessment highlighted support from domestic demand and investment, while the HSBC Flash India Composite PMI rose to 56.7 in October from 55.9 in September, marking its fastest expansion since June. September core infrastructure output also grew 7.9% year on year, compared with 5.9% in August. Bank credit growth remained elevated at around 19.3% year on year as of 30 September. However, the RBI's recent 25-basis-point repo rate increase to 5.50% and its shift to a calibrated tightening stance signal that near-term monetary policy will remain sensitive to inflation risks. Global uncertainty and crude oil prices could further complicate the growth-inflation outlook. Looking ahead, markets will track the US Federal Reserve's policy decision, domestic industrial production, corporate earnings and movements in foreign investor flows. Despite supportive domestic activity indicators, volatility may remain elevated until geopolitical and energy-market risks ease.
Global markets remained under pressure as investors assessed geopolitical risks, higher energy prices and uneven economic data. In the UK, consumer price inflation accelerated to 3.5% in September from 3.1% in August, above the 3.4% forecast, while retail sales volumes declined 0.4%. The combination of higher inflation and weaker retail activity points to continued pressure on household purchasing power. Japan's exports rose 16.7% year on year in September, marking the 13th consecutive month of growth, although the increase fell short of market expectations. Core inflation accelerated to 2.1%, moving above the Bank of Japan's 2% target, while an underlying measure excluding food and fuel rose to 2.4%. These developments have strengthened expectations of further monetary tightening. Japan's Nikkei 225 declined 4% over the week, marking its second consecutive weekly fall, as investors reduced exposure to technology and AI-related stocks. Chinese equities rebounded on Friday, supported by state-backed buying, but the Shanghai Composite and Shenzhen Component still ended the week lower. The recovery in AI-related shares provided some relief, although investor confidence remained sensitive to policy support and the sustainability of China's market recovery. In the US, housing starts declined 5.2% month on month in September and building permits fell 0.2%, indicating continued weakness in the housing sector. Initial jobless claims dropped to 194,000, suggesting resilience in the labour market, although continuing claims increased. US equities were mixed over the week: the S&P 500 fell 0.5%, the Nasdaq declined 0.7%, and the Dow advanced 0.4%.
Geopolitical tensions in West Asia intensified during the week, increasing concerns about energy security and the continuity of global oil shipments. Reports indicated that the US and Israel were preparing plans for possible renewed strikes against Iran following the US midterm elections. Iran, meanwhile, indicated that its military was prepared to respond to further escalation. Iran-backed Houthi militants continued attacks against Saudi Arabia, with reports of strikes affecting energy infrastructure and other strategic locations. Saudi Aramco reportedly instructed staff to evacuate its Dhahran headquarters and work remotely following a series of attacks. The US State Department also ordered non-essential personnel to leave Saudi Arabia amid the security situation. These developments are particularly important for global energy markets because of the concentration of oil production and shipping routes in the region. Continued disruption around the Strait of Hormuz could reduce crude exports, increase shipping and insurance costs, and sustain elevated energy prices.
Crude oil prices strengthened sharply during the week as investors priced in the possibility of renewed military action against Iran and further disruption to energy supplies. Brent crude rose 3.1% on Friday to settle at US$116.72 per barrel, its highest closing level since April, while West Texas Intermediate (WTI) advanced 3.8% to US$103.27 per barrel. Brent gained approximately 6.2% for the week, while WTI increased around 2%. The rally reflected escalating tensions in the Middle East, continued Houthi attacks against Saudi Arabia and risks to shipments through the Strait of Hormuz. Renewed concerns over the security of energy infrastructure also contributed to the increase. The near-term outlook remains dependent on geopolitical developments, shipping conditions and the extent of any disruption to crude production and exports. A sustained period of elevated prices would be challenging for India because of its dependence on imported energy. Higher crude prices can increase transportation and manufacturing costs, contribute to inflation, pressure the current account balance and affect the rupee.
India's economic indicators continued to show resilience despite the uncertain global environment. The RBI's latest monthly assessment highlighted domestic demand and strengthening investment as key supports for growth, while industrial credit expansion improved during the first half of FY27. Credit to large industries accelerated, while lending to MSMEs maintained double-digit growth, supported by working-capital requirements and policy measures such as credit-guarantee programmes. Total bank credit stood at approximately Rs. 235 lakh crore as of 30 September 2026, representing year-on-year growth of around 19.3%. The HSBC Flash India Composite PMI increased to 56.7 in October from 55.9 in September, indicating faster private-sector expansion. Manufacturing and services activity strengthened, while export orders grew at their fastest pace in six months. Input-cost inflation eased to its lowest level in nearly a year, and output-price inflation moderated. However, job creation remained limited and backlogs of work declined at the fastest pace since August 2021, suggesting that stronger activity has not translated into equally broad employment gains. Core infrastructure output increased 7.9% year on year in September, compared with 5.9% in August. Iron ore, electricity, coal, refinery products, cement and steel contributed to the improvement, while fertilisers, natural gas and crude oil recorded negative growth. Cumulative core-sector growth for April–September FY27 reached 5.1%, compared with 2.5% in the corresponding period a year earlier. Indian Railways also reported a 22.5% increase in coal loading during October up to 18 October, reflecting stronger transportation demand for thermal power generation. Despite these encouraging indicators, the inflation outlook remains a concern. The RBI has highlighted risks from global energy prices, food supply pressures, weather uncertainty and geopolitical developments. The central bank's latest policy projections indicate that inflation could remain elevated over the next two quarters. The balance between robust growth and persistent inflation will therefore remain central to monetary policy and market sentiment.
The US 10-year Treasury yield was around 4.999% on Friday, having risen by more than four basis points during the session. The benchmark yield had fallen below 5% on Thursday as investors assessed concerns over substantial borrowing to finance AI data-centre investment. Bond-market movements remained closely linked to inflation expectations, oil prices and the outlook for Federal Reserve policy. Higher energy prices can contribute to inflationary pressures and reduce the scope for monetary easing, while concerns over debt-funded technology investment can influence demand for government bonds and other perceived defensive assets. The Federal Reserve’s policy decision scheduled for 28 October will be a key event for global markets. Investors will assess the decision and accompanying communication for indications of the future interest-rate path.
The coming week is likely to be event-driven, with the US Federal Reserve's policy decision, Indian industrial production data, corporate earnings and geopolitical developments influencing market direction. Investors will also monitor crude oil prices, foreign institutional investor activity, monthly F&O expiry, and US Treasury yields. The recent correction in mid- and small-cap stocks suggests that risk appetite remains fragile despite supportive domestic activity indicators. Technically, Nifty’s ability to sustain above the 22,150-support zone will remain important for near-term sentiment; a decisive breakdown below 22,000 could increase downside pressure, while a recovery above 23,200 would improve the short-term setup. Overall, domestic growth remains a key positive, but elevated crude prices, corporate earnings and US Federal policy are likely to keep volatility elevated. Investors should remain selective and favour companies with strong earnings visibility, healthy balance sheets and limited sensitivity to crude and currency movements.