Hold Your Horses, Bulls Will Come: What should investors do as oil prices, AI frenzy weigh on Indian stock market

Frustration with falling indices is rising. Portfolios that looked heroic two years ago look tired. SIP statements that once brought a smile are opened with a wince. And if domestic investors are unhappy, foreign investors are more so. For them, falling prices have come with a second blow: a weakening rupee.

India has always suffered when oil is expensive. It imports most of the crude, so a higher oil bill widens deficit, puts the rupee under pressure and fuels inflation. But here's what makes this moment unusual. From 2000 to 2025, US rates were high, but crude was below $100. When crude finally rose above $100, rates had collapsed to zero after the Great Financial Crisis. One headwind usually arrived with a tailwind.

Indian stocks have done poorly whenever either rates or crude were high. Today, geopolitical stress is keeping crude high. Unless a peace deal comes soon, energy-led inflation will keep yields high too.


So, India faces something new: a 10-yr yield above 5% and crude above $100, at the same time. For India, this is a classic deficit problem. It shows up where it hurts: a weaker rupee, portfolio outflows and market underperformance.

On top of that, Indian markets are perceived as anti-AI trade. Around the world, investors are piling into AI and related stocks with a vengeance. The biggest risk everyone already knows about is AI. And nobody knows how this will end.

There are echoes of 2000. As in the dotcom boom, a complex web of deals is forming among players in the AI ecosystem, and capex is being funded by debt. A line often credited to Mark Twain comes to mind: 'History doesn't repeat itself, but it often rhymes.' One can hear the rhyme.

Yet, honesty demands balance. Nvidia has a market capitalisation bigger than the Nifty. Yet, it is cheaper on a PE basis. On valuations alone, we cannot argue that the AI trade is obscenely priced. As we saw in the dotcom era, AI-led capex can continue for some time before the trade ends.

More than the internet, AI is truly transformative. Its implications will go beyond what we can imagine. Which means the money leaving India for that story may not return in a hurry. Read: FIIs.

So, what should retail investors do?

Stop looking at daily net FII sales

That number breeds anxiety, not insight. An early FII return looks unlikely. For a foreign investor, India's capital markets are not an easy place to trade. Competing markets are doing well and are easier to invest in. And with high US Treasury yields and lacklustre Nifty returns, FIIs have no incentive to come back right now.

Watch the crude, and pray for early peace deal

That one variable will do more for Indian markets than any flow statistic.

Go back to basics forgotten in the bull run:

• Focus on asset allocation. It is the decision that matters most, and the one a rising market makes us forget.
• Stop chasing the latest micro and small caps. Many of yesterday's multi-baggers are today's expensive lessons.
• Invest in equities as per your own risk appetite, not your neighbour's returns or your WhatsApp group's tips.

The bull will return. No one knows when. Investor-banker John Templeton once said, 'Bull markets are born on pessimism, grow on scepticism, mature on optimism, and die on euphoria.' If pessimism is the soil in which bulls are born, that soil is being very well-prepared now.

The writer is co-promoter, IIFL Group