Mumbai: Indian equities are well-positioned to recoup part of their global underperformance in 2026, supported by strong macro fundamentals, as GDP growth remains robust and inflation is well contained, a report showed on Thursday. Indian equities enter 2026 with strong domestic tailwinds despite underperforming global peers in 2025.
While benchmark indices posted single to early double-digit gains last year — Nifty rose 11 per cent, Nifty Midcap 6 per cent and Nifty500 7 per cent — they lagged global markets amid heightened geopolitical uncertainty and sustained foreign investor outflows, said Motilal Oswal Financial Services Ltd (MOFSL) in its report.
2025 saw nearly $19 billion in FII outflows, largely driven by disproportionate US trade measures, even as domestic institutional investors (DIIs) emerged as a strong counterbalance. MOFSL notes that policy actions undertaken by the Reserve Bank of India and the government — including cumulative rate cuts, liquidity injections, GST 2.0 reductions, and personal income tax relief — are expected to fully reflect in domestic growth impulses from 2026.
Against this backdrop, the firm identifies the India-US bilateral trade agreement (BTA) as the key missing catalyst that could revive FII participation and trigger a market re-rating. The report expects Q3 FY26 earnings to mark the strongest performance in eight quarters, “with the MOFSL universe projected to deliver 16 per cent year-on-year PAT growth”. Even excluding oil marketing companies, earnings growth is seen at a healthy 13 per cent YoY, despite moderation in Banking and Technology sectors.
The earnings recovery has turned broad-based, with 20 sectors likely to report double-digit growth, signalling the completion of the earnings downcycle that began in FY25. Discretionary consumption has seen a notable revival, aided by GST 2.0 cuts, festive demand, easing interest rates, and higher disposable incomes, said the report. Domestic flows continue to provide strong support to markets.
DIIs invested approximately $90 billion in 2025, supported by steady SIP inflows, which helped absorb both FII selling and robust primary market issuances. “With domestic growth drivers firmly in place and earnings momentum strengthening, India enters CY26 on a much stronger footing,” said the report.
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