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If FY26 had a defining feature, it was the breadth of the sell-off. Indian equities didn’t just correct, they saw a deep, cross-sector downturn that dragged the market lower even as global peers surged ahead.

From defensive sectors like FMCG to rate-sensitive realty and global-facing IT, few corners of the market were spared, underscoring the unusual breadth of the downturn. The stress was not confined to isolated sectors but reflected broader macro headwinds—from global uncertainty and tariff tensions to persistent foreign outflows.

Real estate stocks were the worst performers with the BSE Realty index falling 23.6% in FY26, its weakest performance since the pandemic. Higher interest rates and tighter liquidity conditions hit housing demand and dampened consumer sentiment, reversing gains from the previous cycle. Mint analysis shows the sector has declined on 10 occasions over the past two decades, with its steepest fall over 79%, during the FY09 real estate downturn.

The pressure was equally pronounced in information technology. The BSE IT index emerged as the second worst performer, falling 22.7%—its sharpest drop since FY09—as slowing global tech spending and cautious client budgets weighed on growth.

The fall was further exacerbated by AI-led disruption, marked by concern over workforce displacement and the rise of startups reshaping traditional service delivery models. Over the past two decades, IT has declined in about 43% of years, with its steepest fall over 49%, recorded during the global financial crisis in FY08.

The stress was also visible in sectors typically seen as defensive, such as FMCG. The BSE FMCG index declined 13.7%, its steepest fall since FY09, highlighting the impact of weak demand and global uncertainty on consumption. A Mint analysis of two decades of data shows the sector has risen in about 71% of fiscal years (15 out of 21), but has also declined sharply on six occasions, including a drop of over 50% in FY07 amid early signs of the global financial crisis.

“Realty was the worst performer, followed by IT and FMCG, which saw sustained foreign selling. This reflects a cyclical rotation, not a structural shift,” said Tanvi Kanchan, associate director at Anand Rathi Share & Stock Brokers. “Domestic capex plays outperformed, while global-facing and defensive sectors lagged.”

The firm remains overweight on BFSI, capital goods, defence, auto, healthcare and consumer sectors, with earnings growth expected to rebound to about 17% in FY27 after a muted FY26. “IT remains a patient contrarian play as AI-driven deals begin to convert,” she said.

The sectoral slump played out against a backdrop of stark global divergence. Indian equities ended FY26 as clear underperformers, with the Sensex falling 7%, its steepest drop since the pandemic year, even as global markets posted strong gains.

South Korea’s Kospi surged 113%, Taiwan’s Taiex rose 57% and Japan’s Nikkei 225 gained 46%. Brazil’s Ibovespa climbed 40%, while the US S&P 500 and China’s CSI 300 advanced 13% and 15.5%, respectively, in FY26. The contrast underscores how global liquidity and growth tailwinds lifted other markets even as India grappled with elevated crude prices, currency pressure and sustained foreign selling.

“Valuations have corrected, but not enough to attract strong foreign inflows,” said Abhishek Mishra, founding partner at SKG Investment & Advisory. The markets still trade near 20x earnings—below historical averages, but at a premium to emerging markets, he added.

“With crude prices elevated and geopolitical risks lingering, flows may remain weak in the near term,” Mishra said.

Despite the broad-based correction, pockets of resilience emerged. Metals stood out, with the index rising about 19.4%, supported by firm commodity prices and global demand. Auto stocks gained around 10.4% on steady domestic demand, while capital goods advanced roughly 2.4% on the back of continued infrastructure spending.

“Gains were concentrated in metals and financials, while IT, realty and FMCG lagged. PSU banks stood out, delivering 33% returns versus just 2% for Nifty Bank. Earnings trends reflected this shift, with Nifty 500 profits growing 14% year-on-year, led by metals and oil & gas, while IT remained cautious,” Mishra said.

Looking ahead, earnings growth is expected to remain healthy, with BFSI, metals and capital goods best placed to lead the next phase. Sectors such as IT and FMCG may require a clearer earnings recovery before seeing a meaningful re-rating.

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