Iran War, closure of the Strait of Hormuz, crude oil prices rising above $100 per barrel, rapid weakening of the rupee and continuous outflow of foreign funds – all these have created the most difficult conditions for the Indian equity market in recent years. The Strait of Hormuz, perhaps considered the most important route for the supply of crude oil in the world, is still blocked, due to which markets around the world are under tension.
Foreign institutional investors (FIIs) have further increased this pressure. FIIs have sold Indian equities worth more than $22 billion so far in 2026. This is more than last year’s outflow of $19 billion and is the largest annual selloff in more than two decades.
Yet, amid this turmoil, five sectors have performed tremendously. Pharma, Energy, Defence, Capital Markets and Metals — all have touched new 52-week highs, while the benchmark Nifty50 has fallen more than 7 per cent during the same period. Analysts say that this rise is not just a defensive move for safety, but it also reflects structural clarity in earnings and favorable conditions for long-term growth.
Favorable Structural Conditions
For pharma companies, the strength of this sector is growing due to the coming together of several powerful factors. Sneha Poddar, VP of Research at Motilal Oswal, said in the ET report that the strength of the pharma sector stems from several favorable circumstances coming together. The weakening of the rupee creates an advantageous situation for earnings, as they mainly export, but it is not the main reason. The ‘China+1’ transition — in which innovators and generic drug purchasing countries around the world are diversifying their supply chains by reducing their dependence on Chinese APIs and CDMOs — is now translating into signed contracts and earnings for Indian manufacturers.
According to Poddar, the domestic pharma market itself is growing at the rate of about 10 percent, while biosimilars and GLP-1 generic drugs are opening up completely new avenues of earning for Indian drug makers. He further said that the increase in margins is now becoming more structural. This is not just due to normal operating leverage, but due to better product mix.
promote indigenous
Defense stocks, meanwhile, have become more than just a short-term geopolitical trade. Sumit Singhania of Bajaj Broking said in an ET report that the sharp rise in defense stocks shows that markets are now pricing in a deeper, multi-year shift in India’s strategic ambitions, rather than simply reacting to the Iran conflict.
He said that investors are now betting more and more on the clear intention of the government under which the government wants to build domestic defense capabilities and at the same time establish India as a global export hub.
India’s defense sector is now seen as a structural growth story, backed by aggressive indigenization policies, growing manufacturing capabilities and strong long-term orders. The re-rating of defense stocks reflects growing confidence that India’s military modernization drive, if policy support continues, can ultimately translate into a globally competitive industrial ecosystem.
Increase in energy demand
The energy sector is also benefiting from a strong, long-term demand story that extends far beyond the current geopolitical crisis. India is already the world’s third-largest electricity consumer, but its per capita electricity consumption is still quite low, at around 1,460 kWh – just one-fifth of China’s level. This difference shows the scope for huge increase in demand in the future. Due to rapid urbanization, industrial expansion, increasing penetration of air-conditioners and millions of new electricity connected houses, electricity consumption is continuously increasing across the country.
A completely new source of demand has also been added to this: data centers. India’s data center capacity by the end of 2025 was 1,700 MW, a record increase of 440 MW during that year. It is estimated that by 2030 this capacity will increase to 45 GW, which will be supported by an investment of approximately $30 billion. AI-based data centers operate around the clock, allowing them to drive a steady and structural increase in future grid demand.
From saving to participation
Capital market shares are getting strength from another deep structural change taking place in India and that is Financialization of Household Savings. Ravi Singh of Master Capital Services says in an ET report that retail investment through SIPs continues to create new records, which provides a strong cushion against FII exits and further enhances the strength of domestic markets.
AUM in the mutual fund industry has increased from approximately Rs 12 lakh crore in FY 2016 to approximately Rs 82 lakh crore by April 2026. Monthly SIP investment has crossed Rs 31,000 crore, whereas a decade ago it was only Rs 3,000 crore.
Also, the average cash market turnover during the first four months of 2026 stood at around Rs 1.33 lakh crore, while the monthly average in 2025 was Rs 1.1 lakh crore. This is a sign of continuous increase in investor participation.
Analysts say that this is not just a temporary boom due to liquidity, but a structural deepening of India’s retail investment system. It is being supported by continuous SIP investments, increasing participation and more trading activities. All these factors are continuously strengthening the earning potential for market intermediaries.
Reduction in supply of metals
Amidst the global turmoil, metals have emerged as another great sector. Sandeep Neema of PL Asset Management said in an ET Now report that the metals sector is currently in the middle of a structural bull cycle. The reason for this is that in the last decade, there has been no significant increase in the production capacity of base metals across the world for a long time.
According to NIMA, there has been very little increase in new production capacity of metals like copper, aluminum and steel worldwide, while the excess capacity in China and some other countries has also been gradually reduced.
This has created a favorable equation of demand and supply across the world, and the ongoing war has increased this demand even more rapidly. Neema said that increase in metals congestion is being seen from all sides. The main reasons for this are investment in renewable energy, increasing trend of electric vehicles (EV) and large-scale infrastructure expenditure in different markets, etc.
What should investors do?
In this era of geo-political uncertainty, these sectors have undoubtedly attracted the attention of investors. But analysts argue that to describe this rally merely as a safe investment would be to ignore the significant improvement in fundamentals.
The defense sector is benefiting from record orders and India’s rapid efforts towards co-production and indigenization. Pharma companies are taking advantage of the strong momentum of US generic drugs, favorable rupee environment and healthy growth in domestic formulations. Energy stocks are supported by a pick-up in structural power demand, while capital market stocks continue to benefit from rising retail investor participation and AUM.
Poddar says in the media report that geopolitical uncertainty has accelerated investment flows, but the clarity of income behind each sector and strong policy support are maintaining the valuations and fundamentally justifying the revaluation.
