NewKerala.com

India's Equity Surge: Reflation and Earnings Revival to Fuel Growth Through 2026

Standard Chartered's "Outlook 2026" report projects a sustained rise in Indian equities, fueled by a reflating economy expected to achieve double-digit nominal GDP growth. Corporate earnings are forecast to rebound sharply, with Nifty EPS CAGR anticipated at 16% for 2025-2028, reversing a previous downgrade cycle. The analysis predicts foreign portfolio investors will return as growth and earnings improve, following significant outflows. The bank recommends an overweight stance on large-cap equities for safety and mid-caps for strong earnings, supported by favorable domestic liquidity and financialization of savings.

Key Points: Indian Equities Outlook 2026: Reflation & Earnings to Drive Growth

  • Reflating economy with double-digit nominal GDP
  • 16% Nifty EPS CAGR forecast
  • Return of foreign portfolio investors
  • Supportive domestic liquidity
2 min read

Reflation, possible earnings revival to push Indian equities higher through 2026: Report

Standard Chartered forecasts Indian equities to rise through 2026, driven by reflation, a 16% EPS CAGR, and returning foreign investor inflows.

"A reflating economy, easing financial conditions, an uptick in consumption demand... are likely to drive the corporate profit cycle. - Standard Chartered Report"

New Delhi, December 26

Reflation in the Indian economy, a possible revival in corporate earnings, and the return of foreign portfolio investors are among the positive signs that Indian equities will push higher year-on-year through the New Year - 2026, according to a report by Standard Chartered.

The report 'Outlook 2026: Ride the Recovery Wave' noted that they remain "constructive" on Indian equities in 2026 and expect markets to push higher through the year.

At the macro level, a reflating economy, with a nominal GDP growth rate expected to move into double digits amid broad-based growth and normalisation of inflation, is supportive of the corporate revenue outlook, it noted.

Consensus expects Nifty Index EPS CAGR to rise to 16 per cent for 2025-26-28, compared to 5 per cent for 2023-24-26 as the year-long earnings downgrade cycle bottoms out, the report noted.

"A reflating economy, easing financial conditions, an uptick in consumption demand amid GST cuts and strong rural demand coupled with bank deregulations are likely to drive the corporate profit cycle in the coming year," the report added.

Inflation in India has begun to show early signs of reflation after remaining at a record low over the past months. Reflation measures include tax cuts, increased spending, and lower interest rates to boost demand, production, and jobs. The goal is to counter deflationary pressures and restore growth, as seen in initiatives like Atma Nirbhar Bharat and recent rate cuts.

After significant outflows this year, foreign investor positioning is close to multi-decade lows.

A turnaround in growth and earnings is likely to result in a return of foreign investor inflows, it noted.

On the domestic front, liquidity remains supportive, it noted.

"On the domestic front, liquidity remains supportive amid (i) cyclical drivers - as relative valuations point to the attractiveness of equities vs bond, leading to greater allocation to equities in hybrid strategies and (ii) structural drivers - still low household allocation towards equity and financialisation of savings," it supplemented.

Against that backdrop, Standard Chartered is overweight on Large-cap Equities.

"These (Large-cap Equities) offer a greater margin of safety for both valuations and earnings, compared to Mid- and Small-cap Equities. Further, Large-cap Equities are the first beneficiaries of a resumption of foreign investor inflows and higher equity allocation in hybrid strategies," the report read.

They are also overweight on Midcap Equities, citing strong earnings and reasonable valuations.

- ANI

Share this article:

Reader Comments

P
Priya S
Finally some positive outlook after a tough year! The return of FIIs is crucial. I've been investing through SIPs and this report gives me confidence to continue. Hope the benefits of reflation and GST cuts actually reach the common man and boost consumption.
R
Rohit P
Reports are always optimistic. I'll believe the earnings revival when I see it in my portfolio. The market feels overvalued, and small retail investors often get caught in the hype. Caution is key, bhai log. Don't put all your eggs in one basket.
S
Sarah B
Interesting read. As an expat investing in India, the perspective on foreign investor positioning being at multi-decade lows is a potential opportunity. The structural shift towards financialisation of savings is a powerful long-term story.
V
Vikram M
Strong rural demand is the key. If monsoon is good and MSPs are supportive, the whole economy gets a boost. The report mentions it, but execution on the ground for schemes like Atma Nirbhar Bharat will determine if this growth is inclusive.
K
Karthik V
While the outlook seems positive, I have a respectful criticism. These reports often overlook global headwinds. A recession in the US or EU can quickly reverse FII flows, no matter how good our domestic story is. We need to build more resilient internal markets.
A

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

Leave a Comment

Minimum 50 characters 0/50