India's equity markets are entering a period of consolidation after a record FY26, according to Equirus' Equity Capital Markets Tracker – May 2026, which highlights diverging global market performances, moderating IPO activity and continued caution among foreign investors.
The divergence in market performance was evident across major indices. Japan's Nikkei 225 Index surged 11.45% during May, while the U.S. S&P 500 gained 5.27%, buoyed by resilient economic indicators and optimism around technology-led growth. India, however, underperformed, with the benchmark Nifty 50 declining 2.4%, reflecting a more subdued investor mood. Hong Kong's Hang Seng Index was also among the weaker markets, falling 3.5%.

The relative underperformance comes after a strong FY26 for Indian capital markets, when companies took advantage of favourable valuations and abundant liquidity to raise record amounts through public offerings. That momentum, however, has begun to wane.

Dull IPO activity

After peaking in September 2025, IPO activity has slowed considerably. Market volatility, geopolitical uncertainties and concerns over the global economic outlook have prompted both issuers and investors to adopt a wait-and-watch approach. Large-ticket offerings that dominated the previous cycle have become fewer, and new listings have moderated significantly in recent months.

The slowdown signals a transition from the exuberance that characterized FY26 to a phase of consolidation. Companies are increasingly becoming selective about the timing of their offerings, preferring to postpone fundraising plans until market conditions become more conducive.

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Foreign fund flow

Foreign investors, meanwhile, have remained cautious toward Indian equities. Global risk aversion, changing interest-rate expectations and geopolitical tensions have contributed to volatile foreign institutional investor (FII) flows over the past year. While overseas investors continue to view India as a long-term growth story, short-term uncertainties have resulted in intermittent selling and a more measured approach to capital allocation.

Yet, despite the uneven foreign flows, Indian markets have found support from a growing domestic investor base. Systematic Investment Plan (SIP) contributions have remained robust, highlighting the increasing role of retail investors in providing stability to the market. Strong mutual fund inflows have helped offset periods of foreign outflows and have prevented sharper corrections in equities.

This shift underscores an important structural change in India's capital markets. Unlike previous cycles, the market is no longer solely dependent on foreign capital. Rising household participation and consistent domestic savings have created a powerful counterbalance to external volatility.

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What lies ahead?

Looking ahead, analysts expect Indian markets to remain sensitive to global developments, including interest-rate decisions, geopolitical events and corporate earnings trends. The near term may continue to witness bouts of volatility and a slower pace of primary issuances.

However, the resilience of domestic flows and the depth of India's investor base suggest that the current slowdown may represent a period of recalibration rather than a reversal. While the global rally may have bypassed India for now, the country's long-term market fundamentals remain intact, positioning it to regain momentum once uncertainty begins to recede.

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