India’s equity market held steady in 2025 but moved inside a tight range, and the next year will be decided by a few key forces.
1. Will the AI buzz keep driving stocks?
Artificial intelligence is the main theme right now. Companies that make AI chips, data‑centers or software have seen their shares soar on high expectations. If AI usage grows as hoped, they could keep rising. But if the hype fades, the market could see a sharp correction.
2. Will valuations become more realistic?
In 2025 the market’s big‑cap index stayed near its September‑2024 peak, but mid‑cap and small‑cap indices lagged 6‑11%. Only about 32% of the 4,386 listed stocks posted gains, the lowest share since 2020‑21. This shows investors are being more cautious about over‑paying for growth.
3. Will foreign investors come back?
The Sensex trades at a price‑to‑earnings (PE) ratio of roughly 23.5, while mid‑cap and small‑cap stocks sit near 32. These are high valuations that need strong earnings growth. In 2025 foreign portfolio investors (FPIs) were net sellers, while domestic mutual funds kept buying. Their opposite actions will influence how much money flows into Indian shares.
4. Will Indian retail investors stay enthusiastic?
Retail interest has helped mutual funds pour a record ₹13.7 trillion into equities over five years. The number of mutual‑fund investors rose to 58.4 million by November 2025, and monthly SIP inflows more than doubled since 2021‑22. However, the growth of new demat accounts slowed to 1.7 million per month, and inactive accounts rose to 66%, hinting at a possible slowdown.
5. Will the IPO market keep booming?
Strong retail demand has supported many recent IPOs, and 2025‑26 may even out‑perform the previous year. If retail inflows ease, new listings could face weaker buying pressure, making it harder for fresh companies to raise funds.
Bottom line: AI enthusiasm, foreign fund outflows, tighter valuations and the pace of retail participation will shape India’s stock market in 2026. Keep an eye on these factors to gauge where equity prices may head.
Remember, this is perspective, not prediction. Do your own research before making any investment decisions.