Brent crude prices have fallen 40% from their all-time high of $120 a barrel in 2026. However, the Indian stock market did not show the same momentum as expected. As the impact of the global oil shock fades, another big threat looms over the stock market: the rapid formation of a “Super El Nino”, which has led to the weakest start to the monsoon in the last decade.
Due to this, 56% of India’s GDP, which is dependent on consumption, is in danger. It is noteworthy that in the last two years the stock market has given almost no returns to the investors. Experts believe that the main threat facing the Indian stock market is no longer the supply of crude oil, but the decline in domestic demand. There may be a big fall in the shares of FMCG companies.
Pratik Parekh of Nuvama Institutional Equities said in an ET report that in 2026, the Indian stock market will behave like a top – that is, it will rotate, but will remain stuck within a limited range. Will it break out of this range once the oil price shocks subside? We don’t think so. Although easy supply conditions will help, demand may slow down. The impact of the tax cuts is wearing off, El Nino has arrived, and the income/credit multiplier is weak; As a result, the market is likely to remain range-bound due to elevated valuations and risks shifting from supply to demand.
Almost no returns in two years
The Nifty 50 has delivered almost no returns in the last two years, and analysts at major Indian brokerage firms see no clear path forward. The weather department’s data is worrying: Till June 26, 2026, total rainfall was 42% below the long-term average (LTA) – the weakest start to the monsoon season in the last decade. About 72% of the country is facing severe rainfall deficiency. This reduction is 57% in Central India, 43% in Eastern and North-Eastern India, 30% in the Southern Peninsula and 24% in North and Western India. According to experts, this deficit in rainfall is more than the deficit recorded in El Nino years like 2019 (-40%) and 2023 (-36%), increasing the risks associated with the Kharif season of 2026.
**IMD reduced rainfall forecast**
This issue is not limited to just the agriculture sector but has become a major macro-economic incident. The India Meteorological Department (IMD) has reduced its rainfall forecast to 90% of the Long-Term Average (LPA) – the weakest monsoon estimate in the last 11 years – and indicates a 60% chance of less rainfall. Since kharif crops account for about 50% of India’s grain production and the agriculture sector employs 46% of the workforce, a weak monsoon hits the very foundation of the economy. Ambit Capital says that historically, El Nino years have often seen agricultural production stagnate due to the absence of a positive Indian Ocean Dipole (IOD), leading to a direct decline in rural incomes.
**Support to rural economy is decreasing**
The impact of bad weather is posing a big risk. During FY25 and FY26, the rural economy has been a key underpinning for India, with healthy farm earnings, continued strong demand for tractors and stable customer confidence. But now, this strength is waning due to ‘Super El Nino’, rising fertilizer prices and rising borrowing costs. Recent RBI surveys are already indicating trouble, showing that conditions are worsening for both urban and rural customers, while expectations for the future are weakening.
Emkay Global warned that prolonged stress would significantly lower its estimates for volume growth in consumption. The report said India is heading towards a recession with less buffer than in January. Fears of El Nino, higher fertilizer prices and weak sentiment are weighing on consumption, while investment, government capex and net exports are all under pressure. Moreover, inflation risks, widening current account deficit (CAD) and pressure on the rupee have limited the RBI’s scope to support growth. This does not mean a recession, but slower growth and a tighter policy mix, which will impact earnings prospects and market valuations.
**Impact on company rating**
Brokerage firms are downgrading consumer-facing sectors to mitigate these risks. PL Capital has gradually reduced its stake in the consumer sector by 40 basis points due to rising inflation and reduced demand due to the impact of El Nino. It also cut its stake in Mahindra & Mahindra (M&M) by 50 basis points and warned that tractor demand growth could fall from the current high base due to El Nino. Additionally, PL Capital highlights the persistent risk of inflation exceeding the RBI target due to factors such as geopolitical uncertainties pushing up prices of key inputs based on crude oil.
**Market rerating stopped**
For the stock market, sluggish domestic demand negates the gains from cheap oil. Analysts believe the fear of ‘Super El Nino’ could hit rural demand and drag down sectors like FMCG, but its broader link to food inflation is still uncertain, depending on factors such as buffer stocks, trade policy and Minimum Support Price (MSP) mechanism. Moreover, a weak monsoon could have serious economic consequences. Due to this, the government may have to provide more funds for rural employment guarantee schemes and drought relief demanded by different states.
Dolat Capital analyst Amit Khurana said in a report in ET that the market has largely accepted the recent improvement in macro-economic conditions, but any significant change from the current levels will require more reasons. Crucial to this will be a reduction in FPI outflows – especially from large-cap sectors like banking and IT, where foreign stakes remain high despite continued capital inflows into US markets. Investors’ focus is likely to be on the progress of the monsoon season and development of El Nino conditions.
**What does the CareAge report say?**
Not all analysts see the situation as an impending disaster. CareAge ratings show that India is better prepared than previous climate-related crises. This is due to major structural changes such as expansion of irrigation coverage, development of non-agricultural rural economy and gradual diversification into animal husbandry and fisheries. The country is also benefiting from high reservoir levels and strong buffer stocks of wheat and rice due to above average monsoon rainfall for two consecutive years.
According to IMD estimates, although the threat of El Nino is increasing, its impact on the key monsoon months (June–September) may be limited, as the weather pattern is not expected to completely transform into “Super El Nino” until November 2026. CareAge says that although local level disruptions are inevitable and risks remain very uneven across states with limited irrigation, the overall macro-economic impact is manageable. However, for the stock market looking for the next growth trigger, the immediate reality is clear: the unintended consequences of the steep fall in crude oil prices are over, and the near-term outlook for Indian equities will depend entirely on the weather (cloudy skies).
