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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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