>Fixed deposits from nationalised banks delivered higher returns than equities, outperforming both inflation and stock market benchmarks.
Illustration: Dominic Xavier/Rediff
Key Points
- Benchmark indices Nifty and Sensex recorded their worst annual performance in six years during FY26, declining sharply.
- Fixed deposits from nationalised banks delivered higher returns than equities, outperforming both inflation and stock market benchmarks.
- Analysts remain optimistic about equities in FY27, particularly small and midcap stocks, citing attractive valuations and macro recovery.
Equity market returns were dismal in 2025-2026 (FY26) as the Sensex and Nifty saw their worst performance in six years.
According to data, the Nifty 50 declined 5.1 per cent in FY26, while the Sensex tanked 7.1 per cent.
In the broader markets, the Nifty Midcap 100 surged a modest 1.9 per cent, while the Nifty Smallcap 100 slipped around 6 per cent in FY26.
On the other hand, a one-year but less than two years fixed deposit (FD) with a nationalised bank, such as State Bank of India (SBI), for a deposit of less than Rs 3 crore would have earned a return of 6.25 per cent.
This return is not only higher than the retail inflation print of 3.21 per cent for February but also beat the gains seen in the frontline indices in FY26.
FD Returns Beat Equities
Analysts expect equities to outperform most asset classes in FY27.
This is despite the ongoing geopolitical conflict in West Asia, artificial intelligence (AI)-related worries and trade war fears that dented sentiment for most of FY26.
FY27 will be the year of equity, especially small and midcap (SMC) stocks, said G Chokkalingam, founder and head of research at Equinomics Research.
Fundamentally, the Indian markets look appealing, he said, as the Sensex’s trailing price-earnings (PE) is around 20x compared to five-year average (before market fall) of around 24x.
“Market to FY27 nominal gross domestic product (GDP) is just around 109 per cent compared 152 per cent seen at the peak of market 2024. Since September 2024, SMC stocks have underperformed badly. Once the war subsides, the Indian equity markets will bounce sharply, especially the SMC segment,” he said.
Equities in FY27, according to Jitendra Gohil, chief investment strategist, Kotak Alternate Asset Managers, can deliver mid-to-high single-digit returns.
“One should take a longer-term view, say over two years, and wait for some more correction before entering the market. Gold can see one more round of correction and will deliver negative returns in FY27 along with silver,” he said.
Nifty Target 24000-26000
The data, too, remains supportive of equities.
During the last 15 years, according to Anand James, chief market strategist at Geojit Investments, there have been seven instances of the first three months (of a financial year) giving negative returns.
In all, but five instances, Nifty ended up with positive returns (for the financial year), with the least returns being 14.93 per cent.
James said if we take financial years into perspective, there have been four instances of negative returns. The subsequent financial year gave positive returns every time, with the lowest returns being 7.31 per cent.
“Extrapolating the 7 to 15 per cent returns, Nifty could aim for 24,000 to 26,000, and a downside of 20,500. This is largely in agreement with technical analysis-based projection, which sees a base-case scenario of 24,400, best case scenario of 26,000 and worst-case objective of 19,000,” he said.
Crude Oil Inflation Risk
The case for FDs also remains strong for risk-averse investors who can park their investible surplus at least till the time there is clarity on developments in West Asia.
Interest rates, too, can see an upswing as central banks consider a tighter monetary policy.
‘Should crude oil price escalate to average around $100 a barrel, inflation is likely to exceed 5 per cent, economic growth could drop to around 6.5-6.7 per cent, and the current account deficit (CAD) may rise to around 2.3-2.5 per cent of GDP. This is a scenario in which the Reserve Bank of India would likely need to consider rate hikes,’ suggests a note from DMI Finance.
Feature Presentation: Aslam Hunani/Rediff
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