The price of Brent crude has fallen 40 percent from its 2026 peak of $120 per barrel. But the Indian stock market did not rise with the pace it should have. As the impact of the global oil shock is diminishing, another big threat seems to be coming towards the stock market. Due to the rapidly developing “Super El Nino”, the monsoon has had the weakest start in the last decade.
Due to this, 56 percent of India’s GDP, which is related to consumption, is in danger. The special thing is that in the last two years the stock market has not given any returns to the investors. According to experts, the biggest risk for the Indian stock market now is not going to be the supply of crude oil but the decline in domestic demand. A big fall may be seen in the shares of FMCG companies.
Pratik Parekh of Nuvama Institutional Equities says in an ET report that in 2026, Indian equities have been like a top – spinning but stuck in a circle. Will they be able to break out of this range once the shock to oil prices subsides? We don’t think so. Easier supply will help, but demand may slow down. The impact of tax cuts is waning, El Nino has arrived and income/credit multipliers are weak… Hence, the market is likely to remain range bound as risks shift from supply to demand amid high valuations.
Almost no returns in two years
Nifty 50 has given almost no returns in the last two years. And according to analysts of some leading brokerage firms of India, the way forward also does not seem clear. The data of the weather department is worrying. Total rainfall till June 26, 2026 has been 42 per cent below the Long-Term Average (LTA), which is the weakest start to the monsoon season in the last ten years. There is severe shortage of rain in about 72 percent of the country. There is a deficit of 57 percent in Central India, 43 percent in East and North-East India, 30 percent in the Southern Peninsula and 24 percent in North and West India. According to analysts, this rainfall deficit is more than the deficit seen during the same period in El Nino years 2019 (-40 per cent) and 2023 (-36 per cent), and has increased the risks associated with the 2026 Kharif season.
IMD reduced rainfall forecast
This is no longer just a farming problem, but has become a major macro-economic phenomenon. The Indian Meteorological Department (IMD) has reduced the rainfall forecast to 90 percent of the long-period average, which is the weakest monsoon forecast in 11 years, and the probability of less rainfall has been said to be 60 percent. Since the Kharif crop accounts for about 50 percent of India’s grain production and 46 percent of the workforce is engaged in farming, a weak monsoon hits the very foundation of the economy. Ambit Capital says that historically, El Nino years that have not seen a positive Indian Ocean Dipole (IOD) have often seen stagnation in agricultural production, which has a direct impact on rural incomes.
Support for rural economy is ending
This time of inclement weather is very dangerous. By the end of FY2025 and FY2026, the rural economy was acting as a key support for India, characterized by strong farm incomes, continued strong tractor demand and stable customer confidence. Now, this strength is eroding under the burden of Super El Nino, rising fertilizer prices and rising borrowing costs. Recent RBI surveys are already giving warning signs, which show that the current situation among both urban and rural customers is worsening and future expectations are weakening.
MCapital has warned that due to prolonged stress, estimates of growth in consumption volumes will be significantly reduced. The report said that India is moving towards a recession with fewer safety measures (buffers) than in January. Consumption is being hit by the threat of El Nino, high fertilizer prices and weak confidence, while investment, government capex and net exports are all under pressure. Also, the threat of inflation, rising CAD (current account deficit) and pressure on the rupee have reduced the RBI’s scope to support growth. This does not mean a complete collapse, but slower growth and a tighter policy mix, which will weigh on earnings potential and market cap.
Impact on ratings of companies
To deal with this impact, brokerage companies are reducing the ratings of core sector sectors related to clients. PL Capital has gradually reduced its weightage in the consumer sector by 40 basis points citing rising inflation and reduced demand due to the impact of El Nino. It has also reduced its stake in Mahindra & Mahindra (M&M) by 50 basis points and warned that tractor demand growth at a high base may be sluggish due to El Nino. Furthermore, PL Capital stressed that inflation remains likely to exceed the RBI target as food inflation has been negative since June 2025 and geopolitical uncertainties have led to a surge in prices of key inputs based on crude oil.
Market re-rating is stalled
For the stock market, the decline in domestic demand negates the benefits of cheap oil. Analysts believe that although the fear of ‘Super El Nino’ could badly hit rural demand and drag down sectors like FMCG, its broader link with food inflation is uncertain and depends on buffer stocks, trade policy and minimum support prices (MSP). Additionally, a weak monsoon could have serious fiscal consequences, forcing the government to allocate more funds to rural employment guarantee schemes and drought-relief demands of individual states.
Dolat Capital analyst Amit Khurana says in an ET report that although the market has largely accepted the recent improvement in macro conditions, we believe that any meaningful re-rating from current levels will require additional triggers. The most important of these will be a decline in FPI outflows, especially from large-cap sectors like banking and IT, where foreign stakes remain high amid continued strong capital allocation in US markets. Investors’ attention is likely to turn towards the progress of monsoon season and development of El Nino conditions.
What does the CareAge report say?
Not all analysts see this situation as an immediate disaster. CareAge Ratings suggests that India appears to be better prepared than previous climate crises, thanks to important structural changes, such as increased irrigation coverage, development of non-agricultural rural sector, and gradual diversification towards animal husbandry and fisheries. The country also benefits from high reservoir levels and strong buffer stocks of wheat and rice after the last two extra monsoon years.
According to the IMD’s timeline, although the risk of El Nino is increasing, its impact on the key monsoon months (June-September) may be limited, as the weather pattern is expected to completely transform into “Super El Nino” from November 2026. CareAge believes that while local level disruptions are certain and risks remain highly uneven across less irrigated states, the overall macro-economic impact is manageable. Yet, for equities looking for the next trigger of growth, the immediate reality is clear: the gains from falling crude oil prices are over, and the immediate path forward for Indian equities will depend entirely on the weather (clouds).
