Market outlook: Monsoon, crude oil prices to earnings - Five key macro triggers for Dalal Street in H2CY26

After a volatile and challenging first half of 2026, market experts and brokerages believe the outlook for Indian equities is turning more constructive. Falling crude oil prices, easing inflation risks and improving corporate earnings prospects are expected to support the market in H2CY26.

However, they remain cautious that expensive valuations, uncertainty around the monsoon and high US bond yields could keep returns modest despite the improving macro environment.

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Investments, said the sharp decline in crude oil prices has significantly improved India's macroeconomic outlook by easing inflationary pressures. However, he cautioned that an uneven monsoon, which could affect both growth and inflation, and elevated US bond yields remain key risks for the market. Vijayakumar also expects Q1FY27 corporate earnings to remain subdued due to the lingering impact of the energy crisis, although he anticipates a stronger recovery in the subsequent quarters. Given the current valuations, he expects only modest returns from equities this year.

Echoing a similar view, Sunny Agrawal, Head of Fundamental Research at SBI Securities, said the second half of CY2026 should be relatively stronger as concerns over elevated crude oil prices, inflation and interest rates have eased considerably, with oil prices retreating to pre-conflict levels. He believes the improving macroeconomic environment provides a favourable backdrop for corporate earnings growth. However, Agrawal said the progress and distribution of the monsoon during July and August will remain a key monitorable, as it will influence rural demand and overall economic activity.

Supporting the constructive outlook, Motilal Oswal Financial Services (MOFSL), in its latest market strategy report, noted that the Nifty 50 ended June 2026 with a 1.4% monthly gain at 23,866, despite witnessing an intra-month swing of nearly 1,191 points. However, the benchmark index remains down 8.7% on a calendar year-to-date basis, reflecting the volatile first half of the year.

The brokerage also highlighted that domestic institutional investors (DIIs) continue to provide a strong cushion to the market. DIIs invested $8.7 billion in June, while foreign institutional investors (FIIs) remained net sellers for the fourth consecutive month, pulling out $3 billion during the period. Overall, FII outflows stand at $29 billion in CY26YTD, compared with DII inflows of $50.1 billion, underscoring the resilience of domestic liquidity in supporting Indian equities despite persistent foreign selling.

5 biggest macro triggers that could shape the market in H2CY26

Monsoon performance

Agrawal said the progress and distribution of the southwest monsoon during July and August will be the most immediate factor to watch. Any shortfall or uneven rainfall across key agricultural regions could impact crop output, leading to higher food inflation and weaker rural demand. However, he noted that adequate government foodgrain stocks should help contain inflationary pressures in the short- to medium-term.

Geopolitical tensions and crude oil prices

According to Agrawal, developments surrounding the US-Iran peace process remain a critical global risk. Any escalation in geopolitical tensions could push crude oil prices back above $100 per barrel, increasing input costs for commodities such as chemicals, fertilisers and metals and adding to inflationary pressures.

India-US trade negotiations

Agrawal said the outcome of the ongoing India-US trade negotiations will be another important monitorable. Any unfavourable tariff structure or higher import duties could hurt the competitiveness of Indian exports, particularly if rival Asian economies secure better trade terms.

Corporate earnings growth

Corporate earnings will remain a crucial driver of market sentiment, Agrawal said. He noted that the Nifty 50 has delivered only single-digit earnings growth over the past seven to eight quarters, while expectations are for a return to double-digit growth in FY27. If earnings, particularly from heavyweight banking and IT companies, continue to disappoint, it could trigger renewed selling by foreign investors.

USD/INR trajectory

Agrawal also highlighted the USD/INR exchange rate as a key macro variable. He said a stable rupee is essential for sustaining foreign institutional investor (FII) flows, while excessive currency volatility could weigh on investor confidence and liquidity in the equity market during H2CY26.

Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.