Indian equities to see strong momentum in 2026 driven by govt policies: Report
New Delhi, Dec 10
Though Indian equities underperformed in 2025, a stronger performance is awaiting them in 2026, driven by supportive government policies and rate cuts, a report said on Wednesday.
A double‑digit return is likely next year if policy measures revive consumption along with a favourable regulatory regime, the report from HSBC Global Investment Research said.
"Equities underperformed in 2025, but thanks to government support we expect next year to be better, especially compared to regional peers," the report said.
The underperformance was due to companies' missing earnings estimates and India's relative weak positioning in the AI value chain.
"While challenges remain, we believe some of this underperformance will unwind in 2026. Significant initiatives by the government to revive consumption such as tax cuts, rate cuts, trading restrictions, etc," the report said.
"At the sector level, we expect a recovery in IT demand, domestic consumer demand and credit off-take in 2026. Cement consolidation may push up prices, while the oil and gas sector may benefit from more gas supply and lower crude prices," said Yogesh Aggarwal Head of Research, India said.
HSBC's analyst said that property is favoured as households upgrade to larger homes while insurance and hospitals remain attractive.
Growth drivers and outlooks vary across these levels and investors need to re-calibrate their valuation expectations accordingly, the report said.
Favourable demographics remain the long-term attraction of India coupled with investment in building manufacturing capabilities, especially for semiconductors and electronics, and improving rural incomes.
The firm highlighted the need to accelerate low-tech manufacturing to create much needed jobs for the youth population.
The rate of urbanisation remains slow in India compared to China or Indonesia and a high-dependency ratio isn't much help in the near term, the report noted.
On the macro front Reserve Bank of India upgraded India's GDP growth to 6.8 per cent and inflation eased to its lowest level in a decade, enabling monetary easing and supporting credit growth and consumption.
— IANS
Reader Comments
As a long-term investor in Indian markets, I appreciate the detailed sectoral outlook. The recovery in IT and domestic consumer demand is what I've been waiting for. However, the report rightly points out the need to temper valuation expectations.
Finally some positive news! The underperformance in 2025 was worrying for small investors like me. Rate cuts and tax relief can't come soon enough. Fingers crossed for 2026! 🤞 The focus on low-tech manufacturing for job creation is the most critical point.
While the optimism is good, we've heard similar forecasts before. The report itself mentions challenges like slow urbanization and a high dependency ratio. Government policies need to be implemented effectively on the ground, not just announced. A bit of healthy skepticism is needed.
The property sector call makes sense. In my city, there's definitely a trend of families looking for bigger homes post-pandemic. If interest rates come down, it will be a big boost. Good to see hospitals and insurance highlighted too - essential sectors.
Interesting analysis. The comparison to regional peers is telling. India's demographic dividend is its ace, but as the report notes, lagging in the AI value chain is a serious long-term risk that needs addressing alongside manufacturing.
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