Indian equity markets are set to enter 2026 on a note of guarded confidence after closing 2025 with resilience despite bouts of volatility.
Market participants expect the coming year to be driven less by broad-based re-rating and more by earnings delivery, domestic liquidity support and selective sectoral opportunities, even as global uncertainties linger.
Prateek Nigudkar, Senior Fund Manager, Shriram AMC, emphasised, “In the year 2025, Indian equity markets staged a choppy but ultimately resilient run. Early part of the year saw a decent sized correction largely on account of valuation concerns, slowing earnings growth and unexpected tariff related announcements.”
In 2025, markets corrected sharply in the early months amid valuation concerns, slowing earnings momentum and unexpected tariff-related developments that weighed on sentiment.
Over time, benchmarks recovered and touched fresh highs at various points, supported by strong domestic inflows and signs of improving cyclical momentum. However, performance remained uneven across sectors and market-cap segments.
Large-caps lead, broader markets stay selective
According to Nigudkar, large-cap stocks led the recovery, with banks and heavyweight IT companies outperforming initially, followed by consumer-facing names as spending showed early signs of revival after GST-related policy support.
Broader markets were more selective, reflecting investor caution around stretched valuations and the sustainability of earnings growth.
Capital flows remained a tale of contrast. Foreign institutional investors stayed on the sidelines or were net sellers for much of the year, influenced by global rate dynamics and geopolitical risks. Domestic investors, however, continued to provide stability.
Systematic investment plan inflows held firm, ensuring a steady flow of capital into equities even during volatile phases. At the same time, the market absorbed significant supply through large IPOs and increased promoter stake sales.
Multi-asset strategies also found favour in 2025, as gold and silver rallied to multi-year highs. The precious metals rally helped cushion portfolios in a year when equity returns were relatively modest, reinforcing the case for diversification.
Optimism for 2026
Brokerage houses broadly echo this measured optimism for 2026. Equity returns in the coming year will be anchored firmly in earnings growth rather than valuation expansion, stressed Nilesh Shah, Managing Director, Kotak Mahindra AMC.
Improving credit growth, healthier balance sheets in the financial sector and easing margin pressures are seen as supportive for banks and non-banking finance companies. Consumption-related sectors are also expected to gain traction, aided by rising incomes, tax reforms and a gradual recovery in rural demand.
Mid-cap stocks are viewed as offering relatively better growth potential compared with large caps, although brokerages caution that the gap in performance may remain narrow and stock selection will be critical.
Export-oriented sectors could benefit if global growth stabilises and interest rates ease, while domestic manufacturing and capital goods themes continue to draw long-term interest on the back of infrastructure spending and policy support, the Kotak Mutual fund annual outlook 2026 report read.
On the asset allocation front, brokerages advise investors to maintain balanced portfolios. Fixed income is expected to play a larger role in portfolios, offering stability alongside equities, while gold and silver may continue to provide diversification benefits.
“We enter 2026 on a cautiously constructive global macro backdrop that includes expectations of a gradual US Fed easing, benign energy prices, resolution to the Russia – Ukraine war as well end of tariff related uncertainty,” Shriram AMC’s Prateek Nigudkar added.
Motilal Oswal remains optimistic on the long-term compounding potential of the domestic markets and advised ivnestors to focus on quality businesses and use market volatility as an opportunity to build exposure fundamentally strong businesses aligned with India’s structural growth themes.