Top Stock Market Risks in FY26: All You Need to Know

The Indian equity markets are looming through a dark cloud, mostly aggravated by weak global cues and poor domestic demand. Investors in FY25 saw a startling difference in their portfolio in various cyclical scenarios, which include the country’s Lok Sabha elections, the U.S. presidential elections and China’s fiscal stimulus plans.

Though the turbulent year is about to end, experts warn investors about heightened uncertainty in the financial year 2025-26, buoyed by U.S. President Donald Trump’s reciprocal tariffs.

Gaurav Dua, Senior Vice President and Head of Capital Market Strategy at Mirae Asset Sharekhan said that concerns appear to be more global than local.

“On the domestic front, the economy could see an improvement with the anticipated rise in government capital expenditure and strengthening rural demand. However, globally, a fresh wave of uncertainty looms as the tariff war kicks in on April 2,” he added.

Nifty 50 and Sensex are set to close with gains of 6.3% and 6.1% in FY25 respectively, while broader markets – Nifty MidCap and Nifty SmallCap – are expected to go up by 6.5% by FY26.

Foreign Portfolio Investors dumped Indian equities worth ₹1.54 trillion in this financial year, while domestic institutional investors infused ₹6 trillion.

Let’s try to understand key risks in FY26

1. Tariff imposition

U.S. President Donald Trump is set to impose reciprocal tariffs from April 2. The move will impact global equity markets and currencies.

“The full impact on global trade and economic growth is yet to be realised, as such policy changes typically take a few quarters to trickle down,” noted Narendra Solanki, Head of Fundamental Research - Investment Services at Anand Rathi Shares and Stock Brokers.

2. Delayed economic recovery

As per analysts, no major risk looms on the domestic market. Major concerns like sluggishness in the economy, and gradual recovery following interest rate cuts, are already reflected in market valuations.

“Markets have been anticipating a pickup in growth during the first half of FY26, but if this recovery is pushed toward the latter half of the year, it could lead to short-term disappointment among investors,” said Narendra Solanki of Anand Rathi.

3. Earnings worries

Though earnings are expected to be poor, analysts caution that market projections still remain above the reported trend.

Ajit Mishra, SVP Research, Religare Broking said, “Fourth-quarter earnings are likely to be slower as credit growth remains weak, and the impact of government spending and the Reserve Bank of India's liquidity measures will likely be seen only from the next fiscal year.”

4. FII outflows

Last week, the Indian stock market reported its first weekly net inflow of foreign funds in the calendar year 2025.

“Global economic trends, US interest rate movements, and geopolitical uncertainties will continue to shape investor sentiment, making the long-term sustainability of FII flows dependent on both domestic resilience and external stability,” Ajit Mishra of Religare Broking explained.