Pankaj Pandey of ICICI Securities expects the Indian equity market to deliver healthy double-digit returns over the next 12 months, driven by the prospect of double-digit earnings growth, goods and services tax (GST) rate cut–led consumption recovery, the possibility of an India-US trade deal, and a lower interest-rate environment.
That optimism, however, is tempered by global risks, which Pandey sees as a continuing headwind. He has set a 12-month target of 29,500 for the Nifty 50 and 98,500 for the Sensex.
Among sectors, he remains constructive on BFSI, IT, capital goods and real estate, with Bank of Baroda and KPIT Tech among his preferred long-term picks.
Edited excerpts of his views follow:
Outlook for the market for 2026. Key headwinds and tailwinds
We believe India’s macroeconomic foundation remains solid across key parameters.
Inflation is averaging around 2.1%, interest rates have already been cut by 125 basis points, and government spending remains strong, with 60% of the capex target met by October.
Policy measures such as income-tax rationalisation—no tax on income up to ₹12 lakh—and GST rate rationalisation, including the proposed abolition of the 12% and 28% slabs, are expected to boost consumption and, in turn, support the investment cycle over the medium term.
Taken together, India offers what Pandey describes as a “perfect trilogy” of lower inflation, lower bond yields and improving growth, creating a supportive backdrop for equities.
We see the September quarter of FY26 as a key turning point in the corporate earnings cycle, noting that the listed universe delivered 12% year-on-year earnings growth in Q2FY26, while the broader market, excluding Nifty companies, posted a stronger 21% growth. This momentum, we expect, will be reinforced by a robust second half of FY26.
Going ahead, we expect the Nifty earnings per share (EPS) to grow at a CAGR of 15% over FY26-28E, led by telecom, BFSI and capital goods space with a similar two-year EPS CAGR for midcaps and small caps pegged at 19-21%.
With the rest of asset classes, i.e. global equities, precious metals delivering returns in the past, the stage is all set for domestic equities to outperform peers.
While foreign portfolio investors at times have been net sellers in the secondary equity market, overall foreign capital flows into India continue to be strong through private channels and the primary market.
Headwinds: Uncertain global trade amid ongoing tariff issues and broader geopolitical risks.
Tailwinds: Resumption of double-digit earnings growth, GST rate cut led consumption growth, an India-US trade deal, and a lower interest rate scenario.
12-month Nifty target?
We expect Nifty earnings to grow 15% CAGR over FY26-28E. Introducing FY28E and rolling over our valuations, we now value Nifty at 29,500, i.e. 21 times PE on FY28E.
Our corresponding target for Sensex is pegged at 98,500. We expect markets to deliver healthy double-digit returns over the next 12 months. On a two-year forward basis, Nifty trades at a P/E ratio of 18.6 times, i.e. within 1 standard deviation of the 10-year average.
Sectors that can generate alpha next year
With sector rotation as the core theme, ICICI Securities expects BFSI, capital goods, IT and real estate to generate alpha next year. These are the sectors at the top of our pegging list.
BFSI: Revival of credit growth, strong asset quality, valuations at historical mean – strong risk reward in PSU banking space.
IT: Time to relook post-healthy corrections as valuations have hit a floor and CY26E will see growth bouncing back.
Capital goods: Momentum in new projects/tenders points to strong ordering activity in CY26E.
Real estate: Huge runway of growth as the sector can multiply by three times over the next five years.
We also expect small-caps to make a comeback next year. Interestingly, analysing the data for the last two decades, it has been observed that there exists a low probability (14%) of small caps correcting in two consecutive years.
Therefore, with the small-cap index down nearly 10% in CY25, odds (86% probability) are in favour of small caps resuming the up move and delivering healthy double-digit returns in CY26E.
Nifty Smallcap index trades at 19.3 times P/E on CY27E versus CY25-27E earnings CAGR of 20.5%; i.e. attractive (less than 1 PEG) versus its peers (Nifty 50 and Nifty Midcap).
Stocks to buy for the long term
Bank of Baroda | Target price: ₹340
Bank of Baroda, the third-largest public sector bank with a global loan book of ~ ₹12.3 trillion, is positioned for a recovery-led growth cycle.
After a relatively slower 1HFY26, credit momentum is expected to accelerate in H2FY26, fuelled by strong corporate sanctions ( ₹40,000 crore) and robust retail/ MSME traction, enabling 11-12% growth over FY26-28E.
Despite pressure, margins are guided at 2.85-3% for FY26E and improve in FY27E, aided by calibrated repricing.
Asset quality remains a key strength with GNPA/NNPA at a multi-year low of 2.16%/0.57%. Steady recoveries and benign credit costs ensure sustained earnings visibility.
NRB Bearings | Target Price: ₹350
NRB Bearings is looking to reinvent its growth strategy to gain market share in underpenetrated segments (like electric and hybrid vehicles, industrial mobility and after-market).
It has announced a capex plan of ~ ₹ 500 crore, of which ₹ 200 crore will be invested over the next two years for expanding and upgrading its manufacturing capabilities and R&D.
This will be primarily towards enhancing capacities and is expected to be completed by Q4FY27, and will increase the company’s total production capacity by 15-25% across various product groups and provide longer-term growth visibility.
Valuations at 17 times P/E on FY27E earnings are at a significant discount to its peers.
KPIT Tech | Target price: ₹1,475
KPIT is a pure-play automotive ER&D services company, focused on helping global OEMs and Tier 1 suppliers accelerate their transition toward SDVs.
It has delivered ROE of 25%+ and ROCE of 30%+ over the last two FYs. It’s strategic transition from a services to end-to-end solutions company, along with increased fixed-price contracts, enhances delivery efficiency and profitability potential as management aims to maintain nearly21% EBITDA margins.
Moreover, M&A led to capability expansion and entry into micromobility and industrial verticals, strengthening long-term capabilities.
We believe that strengthening demand from Europe, India and China, with a robust pipeline, underpins revenue recovery and visibility into FY27.
Phoenix Mills | Target price: ₹2,210
Phoenix Mills is a leading owner, operator and developer of retail-led developments pan-India, having an operational retail area of ~11.5 msf, spread across 12 operational malls and plans to reach 18 msf across 17 malls by 2030. It has 5msf/588 keys operational commercial office/hotels and plans to reach 9msf/2188 keys by 2030.
It is a proxy on the domestic consumption story riding on the premiumization trend. It can potentially generate over ₹ 8,500 crore operating cash flows over FY26-FY30 (5x of ₹ 1700+ crore in FY25).
Additionally, lower leverage (Net debt to EBITDA stood at less than 1 time as on H1FY26), which can aid in future expansions.
Dalmia Bharat | Target price: ₹2,650
Dalmia Bharat is India’s fourth-largest cement manufacturer with a cement capacity of 49.5 mtpa as of FY25 end.
The company has almost doubled its capacity in the last five years, resulting in a nearly 9% volume CAGR.
It is further scaling its capacity to 61.5 mtpa by FY28E (through 12 mtpa expansion in process) and targets 110–130 mtpa by FY31E.
With a healthy demand outlook, volume growth is expected to remain healthy at nearly 8% CAGR over FY25–28E.
Management aims to boost profitability through premium products, operational efficiencies, and cost reduction of ₹150–200/ton, supporting EBITDA/ton expansion to ₹1,362 by FY28E from ₹819 in FY25.
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