Kotak Securities, in its Market Outlook 2026 report, has pegged the base-case target at 29,120 by December 2026, anchored by expectations of robust earnings growth over the next three financial years. The brokerage anticipates Nifty profits to rise 8.2 per cent in FY26, 17.6 per cent in FY27 and 14.8 per cent in FY28. In alternative scenarios, Kotak places the bull-case target at 32,032 and the bear-case target at 26,208.
With FPI outflows persisting, domestic investor sentiment is likely to play a crucial role in determining the market’s direction in the near term, it added.
Earnings performance surpasses expectations in Q2FY26
Kotak Securities noted that Q2FY26 earnings came in ahead of estimates, with adjusted net profits of the Nifty-50 Index increasing 2.6 per cent year-on-year, compared with its earlier projection of a 0.3 per cent rise. Adjusted EBITDA grew 6.7 per cent, surpassing expectations as well.
Broader Nifty 500 companies reported modest 6 per cent revenue growth but recorded double-digit expansion in EBITDA and PAT.
Mixed sectoral trends but improving outlook
Sectors such as cement, diversified financials, electronic manufacturing services, metals and mining, oil and gas, consumable fuels and telecommunications led profit growth.
The automobile sector posted modest domestic volume growth but continued to face margin pressure. Banks saw moderate credit growth, though net interest margins improved. Capital goods companies reported healthier orders, while consumer companies continued to grapple with weak volume trends. IT services showed signs of stabilising demand, pharmaceuticals reported moderate growth and real estate companies delivered strong year-on-year revenue and volume performance.
The earnings outlook seems to have become better on aggregate over the past two months, especially for large- and mid-cap. stocks, with earnings being broadly stable, the report read.
Inflation remains within RBI’s comfort zone
The brokerage highlighted that October 2025 CPI inflation eased sharply to 0.25 per cent, driven by declining food prices and GST rate cuts. Although core inflation climbed to 4.4 per cent, the RBI’s cumulative 125-basis-point rate cuts have brought the policy rate to 5.25 per cent, supporting consumption and investment.
Kotak expects FY26 CPI inflation to average 2.1 per cent, with core inflation averaging 4.3 per cent. It forecasts overall inflation returning to around 4 per cent by early FY27, as the sharp correction in food inflation normalises.
GDP growth outlook remains robust
Real GDP growth accelerated to 8.2 per cent year-on-year in Q2FY26, supported by a benign deflator and strong private consumption and investment. Nominal GDP expanded 8.7 per cent, remaining aligned with earlier trends. Growth was propelled by services such as financial and real estate sectors, while industry benefited from solid momentum in manufacturing and construction. Kotak estimates FY26 real GDP growth at 7.8 per cent, moderating to 6.5 per cent in FY27 as base effects fade.
US tariffs weigh on Indian exports
The report cautioned that elevated US import tariffs on Indian goods continue to pressure outbound shipments, with India’s exports to the US dropping 12 per cent in September 2025. However, exports to the rest of the world rose 11 per cent, tempering the overall impact. Goods exports remain challenged by reciprocal tariff measures and weak global demand, though India’s service exports have shown resilience. Kotak expects FY26 CAD/GDP at 1.3 per cent, supported by firm remittances and stable services receipts.
Overall, Kotak Securities sees India entering 2026 on firm economic footing, buoyed by benign inflation, improving corporate profitability and robust domestic demand. However, it cautions that global uncertainties, export-related pressures and valuation sensitivities will require disciplined stock selection. The brokerage maintains a constructive outlook, with its Nifty 29,120 target reflecting confidence in the market’s medium-term earnings trajectory.