Mumbai: Indian equity markets are entering 2026 on a firmer footing after a year of consolidation, with improving valuations, realistic earnings expectations and strong domestic fundamentals shaping a more constructive outlook, according to a report released on Wednesday. While global events could be a source of uncertainty, India’s macro fundamentals remain strong, according to smallcase managers. They believes that the coming year is likely to reward earnings-led investing rather than momentum-driven trades.
They project a strong consumption-led growth cycle in 2026, supported by moderate inflation, tax cuts, GST reductions, and interest-rate cuts that boost disposable incomes and ease borrowing conditions, said the report. “As we move into 2026 which structurally is more constructive than 2025, valuations look far more reasonable today, earnings expectations are realistic rather than euphoric, and India enters the year with macro stability,” said Sonam Srivastava, smallcase Manager and Founder of Wright Research.
We expect returns to be earnings-led in 2026 rather than multiple-led, which favours disciplined stock selection and factor-driven strategies, Srivastava added. Sneha Jain, smallcase Manager, Founder and CEO, WealthTrust Capital Services said that after the valuation reset in 2025, large caps, traditionally the premium P/B cohort, are now trading below SMIDs on a price-to-book basis — an inversion that signals subdued expectations despite superior balance-sheet strength, cash flows and governance.
“This provides valuation comfort and makes large caps relatively more attractive over the next 6–8 months, though allocations should remain aligned to overall asset allocation, with large caps serving as a stability anchor rather than a tactical overweight,” she mentioned. Fiscal discipline, sustained infrastructure spending, support for manufacturing and MSMEs, and clarity on long-term capital gains taxation matter more than short-term incentives.
According to Prachi Deuskar, smallcase Manager and Co-founder, Lotusdew Wealth and Investment Advisors, “We anticipate the Union Budget will reinforce policy continuity around infrastructure, formalisation, and fiscal prudence, alongside measures to deepen household financial participation.” We also expect some support measures for the MSMEs, such as easier access to finance, credit guarantees, and incentives to boost productivity and market access, she added.
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