Indian equities enter 2026 on firmer footing; Budget 2026 to reinforce policy continuity
Mumbai, Jan 14
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.
— IANS
Reader Comments
As an NRI investor, this is encouraging. The point about large caps now being more attractive than SMIDs on a P/B basis is a significant shift. It suggests a maturing market. Policy continuity is key for foreign investment confidence. 👍
Tax cuts and GST reductions boosting disposable income sounds great on paper. But will it actually reach the common man's pocket, or will inflation eat it up? The government needs to ensure these benefits are passed on. The focus on MSME finance is a must.
"Earnings-led investing" is the right way forward. Too many people got burned chasing momentum stocks. Time to go back to basics and look at company fundamentals. Hope the Budget provides clarity on capital gains tax - that uncertainty is a big headache for planning.
Strong domestic fundamentals are our biggest strength. While the US may face recession fears, India's consumption story is intact. Budget 2026 reinforcing infrastructure spending is crucial for job creation and sustaining this growth cycle. Bharat ka time hai! 💪
A note of respectful criticism: Reports always talk about "improving valuations" at the start of a year. The real test is volatility management. Global events *will* cause uncertainty, and retail investors need better tools and education to navigate that, not just optimistic projections.
K We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.