India Equities Poised for Stronger 2026 After Year of Relative Underperformance

India’s benchmark stock indexes are expected to deliver stronger returns in 2026, supported by improving corporate earnings, stable economic growth and more attractive valuations after lagging global and Asian peers in 2025. The Nifty 50 and Sensex gained 10.5% and 9.1% respectively in 2025 — extending their winning streak to a tenth straight year — but trailed emerging-market and Asia-Pacific indexes that surged between 27% and 30%. Analysts at Goldman Sachs say policy support, better earnings visibility and improving foreign risk appetite could help Indian equities outperform in the coming year.

Market momentum weakened through most of 2025 amid concerns over muted earnings, a weak rupee, U.S. trade tensions and heavy foreign outflows, even as domestic inflows and a stable macro backdrop kept volatility near record lows. Although the benchmarks briefly reclaimed record highs in November on the back of tax cuts, RBI rate reductions and signs of a profit recovery, the rally cooled in December. Brokerage projections now indicate the Nifty could rise about 12% to nearly 29,000 by end-2026, with large-cap valuations turning relatively attractive as India’s premium to global markets slipped below its 10-year average.

However, analysts expect a polarized market in 2026, with pressure likely to persist in the small-cap segment, which continues to trade at elevated earnings multiples compared to historical norms. While financials, autos and metals led sectoral gains in 2025, IT stocks lagged sharply amid weak overseas demand and sizable foreign outflows. Large-cap resilience, stronger credit growth, and continued domestic institutional participation are expected to anchor market performance next year, even as investors remain selective across segments.

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