Introduction to India's Stock Market Outlook 2026
Rishabh Nahar, Partner and Fund Manager at Qode Advisors, shares his views on the Indian stock market outlook for 2026. He believes that the market may give a double-digit return, but only if it shifts from a valuation-driven mindset to an earnings-anchored one.
Key Takeaways from the Global Market's Performance in 2025
The year 2025 was marked by the concentration of leadership in the global market, with the US market narrowing down to a handful of companies. This was a winner-take-most market, with AI becoming a gravitational force, pulling global capital towards these companies. In contrast, China delivered a contrasting message, with the market rewarding policy-backed value pockets.
Indian Stock Market Performance in 2025
India found itself in an unusual position, with the long-term story intact, but the short-term rhythm broken. Domestic flows held the fort, but earnings didn’t accelerate early enough, and with the global risk-on cycle fixated elsewhere, India underperformed despite doing very little wrong.
Will the Indian Stock Market Deliver Double-Digit Returns in 2026?
Nahar believes that 2026 has room for a double-digit year, but only if markets rotate from a valuation-driven mindset to an earnings-anchored one. Three factors tilt the odds in favor: a stronger demand cycle, policy reforms, and a broader market leadership.
Why are FIIs Selling Indian Stocks?
Foreign investors sold Indian stocks in 2025 because of the US AI market and cheaper valuations in China and other emerging markets. However, they still hold nearly ₹75 lakh crore in Indian equities, and their selling was not a verdict on India’s growth story, but rather a relative trade.
Why Could FY26 be the First “Real” Earnings Year in a While?
Nahar believes that FY26 could be the first real earnings year in a while, driven by operating leverage, a goldilocks zone for banks, and visibility in industrials. Exporters will also get a tailwind from currency and policy alignment.
Has the RBI Monetary Easing Cycle Ended?
Nahar believes that the RBI will protect financial stability over growth, and that a weak rupee limits how aggressive they can be. He expects liquidity to be the main instrument, not rates, and that the RBI policy will become more like steering a ship through crosswinds.
What is Driving the Rupee Lower?
The rupee’s depreciation in 2025 was driven by a capital-flow deficit, a policy decision to allow the rupee to reflect fundamentals, and a structural import imbalance. However, this weakness is not a sign of India’s weakness, but rather a sign of India resetting from a consumption-heavy economy to an investment-heavy one.
Expectations from Budget 2026
Nahar believes that Budget 2026 should focus on a fiscal roadmap that trades politics for credibility, a manufacturing push that feels targeted, stability in capital-market taxation, a coherent framework for energy transition, and MSME reforms that reduce friction. If the budget can align policy intent with capital formation, the market will not just cheer, but re-rate.
Conclusion
In conclusion, India's stock market outlook for 2026 looks promising, with the potential for double-digit returns. However, it is crucial for the market to shift from a valuation-driven mindset to an earnings-anchored one. With the right policy measures and a focus on earnings, India can unlock its growth potential and attract foreign investors.
- Key trends to watch: AI, earnings growth, policy reforms, and the rupee's movement.
- Investment opportunities: Industrials, exporters, and companies with a strong focus on earnings growth.
- Risk factors: Global economic uncertainty, trade tensions, and currency fluctuations.