Aided by rebound in corporate earnings, Aditya Birla Sun Life Asset Management Company expects equity markets to perform better this year and deliver return of 10-12 per cent.
The strong domestic liquidity, prospects of a return of foreign portfolio investor flows and better valuations compared with last year will help a turnaround in the equity market’s performance.
While the rupee may pose a near-term challenge, it will turn out to be a longer-term opportunity. “A trade deal could arrest excessive currency depreciation and act as a meaningful trigger for renewed foreign institutional investor inflows,” it said.
Noting that last year was eventful and challenging, the fund house said the headline indices delivered double-digit returns and extended their winning streak to 10 years in a row.
It was on the back of many initiatives and events that continued to dominate headlines ranging from interest rate cut, tax rate cut, sovereign rating upgrade for India, accelerated rupee depreciation, all-time high SIP inflow, among others.
With such a steady flow of positive headlines, the expectation was for India’s financial markets to comfortably tide over the hurdles in 2025, but reality was starkly different.
Key headwinds
The markets grappled with weak earnings growth, drop in valuation along with an uncertain global backdrop. The investor experience turned out to be uneven with small- and mid-cap returns being lower than the frontline index.
Harish Krishnan, co-CIO and head (Equity), Aditya Birla Sun Life AMC, said from an asset-allocation point of view, domestic equities remain attractive relative to other asset classes, while fixed income would likely offer stability as the rate cycle turns positive.
A negative impact of artificial intelligence on India’s demographic dividend and a continued slowdown in domestic consumption could emerge as headwinds in 2026, he said.
Overall, the fund house said 2026 is not expected to be a straight line, as geopolitics, trade concerns and currency movement continue to persist as real risks.