This Diwali, a step back from US edge, a breather for India

The very factors that were negative and redirecting capital away from India (high oil prices, soaring global bond yields and relative lack of direct AI play) have now turned favourable

India’s limited foundational AI and chip manufacturing capabilities have meant that it has not attracted the capital flows, which have been heavily concentrated around the big hardware mega-cap tech companies.

3 min readNov 7, 2026 06:47 AM IST First published on: Nov 7, 2026 at 06:47 AM IST

With the BSE Sensex rising over 8.8 per cent during the week to close at 81,028 points, its highest level since February 27, the run-up to Diwali couldn’t have been better. The rupee strengthened and settled below 94-to-the-dollar for the first time after April 22. Ten-year Indian government bond yields fell to 7.2 per cent, having almost touched 7.5 per cent last week. And foreign portfolio investors (FPI) have started putting in money again, making net purchases of around $4.1 billion in Indian equity markets so far this month. In January-October and all of 2025, they were net sellers to the tune of $23.2 billion and $18.9 billion respectively.

There are three primary drivers behind the seeming turnaround. The first is, of course, Brent crude prices easing to sub-$100 per barrel, from last week’s highs of $118. It comes in the wake of the emphatic wins of Democrats in the US midterms. The results alleviate, for now at least, worries of a military escalation against Iran by the Donald Trump administration and even raise expectations of a diplomatic resolution to the conflict in West Asia. Cheaper oil and the Democrats securing control of both houses have reduced inflation risks and also the threat from new tariff actions by the US based on Trump’s “aggressive unilateralism”. These have lowered 10-year US Treasury yields to 4.8-4.9 per cent from last month’s near-5.4 per cent highs. The drop in US bond yields has come alongside a global sell-off in AI and semiconductor stocks, amid concerns over Democratic Congressmen seeking greater regulatory scrutiny of the industry and potential moratoriums on the construction of data centres.

All these are seen as positive developments for the Indian economy. The rupee has been under pressure from elevated crude and energy prices as well as capital pull-out by FPIs. India’s limited foundational AI and chip manufacturing capabilities have meant that it has not attracted the capital flows, which have been heavily concentrated around the big hardware mega-cap tech companies. The very factors that were negative and redirecting capital away from India (high oil prices, soaring global bond yields and relative lack of direct AI play) have now turned favourable. That offers a breather for Indian policymakers who have been trying to arrest the slide in the rupee and lift sentiment in the market. But they need to still watch out for other risks — El Niño and a renewed flaring up of geopolitical tensions. This is the time to double down on macroeconomic stability and policy continuity, which investors would ultimately value.