Indian stock markets are anticipated to be on a stronger path in 2026, bolstered by robust domestic demand supported by factors such as favorable macroeconomic conditions, decreased inflation, a prosperous post-monsoon harvest, and the wealth effects associated with gold, a report indicated on Tuesday.
According to the report from Bajaj Finserv Asset Management Limited, corporate earnings are expected to improve due to government tax policies and easing monetary conditions from the RBI, suggesting a widespread cyclical recovery.
The asset management company predicts that leadership among sectors will be driven by domestic cyclicals and consumption, while exports may pick up speed as uncertainties related to tariffs diminish and the rupee stabilizes.
In 2025, the market experienced increased volatility stemming from fluctuating trade tariffs, geopolitical issues, and ongoing outflows from foreign institutional investors, yet it displayed resilience supported by solid domestic fundamentals and a change in investor behavior, the report stated.
Large-cap stocks offered relative stability, while mid-cap stocks yielded about 5 percent returns. In contrast, small-cap stocks dropped roughly 8 percent, indicating a preference for quality as investors prioritized balance sheet strength and visible earnings.
Sectoral leadership shifted every few months following the correction in September 2024, with the auto sector (21.7 percent) and consumption alternating at the forefront, bolstered by tax cuts, reduced duties, and festive demand.
Export sectors fell behind due to uncertainties surrounding tariffs, despite the depreciating rupee and tariff issues negatively impacting IT services, which saw a decline of 13.7 percent.
The Nifty 50 Index achieved around 9 percent growth in 2025, while volatility was a key factor influencing sentiment, with India VIX surpassing the 20-mark six times between January and May.
It reached a peak of 22.79 in April and then averaged approximately 13.5 in the latter half of the year, the report highlighted.
A recent report by Standard Chartered pointed out that reflation in the Indian economy, a potential rebound in corporate earnings, and the resurgence of foreign portfolio investors are among the encouraging indicators that suggest Indian equities will continue to rise year-on-year through 2026.