SBICAP Securities Managing Director and CEO Bhuvaneshwari A. has outlined a constructive outlook for Indian equity markets in 2026, highlighting several fundamental improvements that position the market better than the previous year. The brokerage firm expects significant earnings acceleration and valuation normalization to drive market performance.

Market Positioning and Key Drivers

SBICAP Securities identifies five fundamental tailwinds supporting market optimism for 2026. The firm anticipates a return to double-digit earnings growth for FY27 and FY28, marking a sharp recovery from the low single-digit growth witnessed in FY26.

The valuation correction has brought Indian markets to more sustainable levels, with most external headwinds including USD-INR volatility, geopolitical shifts, and foreign portfolio investor outflows now largely factored into current price levels.

Consumption Revival and Economic Outlook

Domestic demand revival is expected to serve as a key catalyst, supported by a cumulative 125 basis points reduction in the repo rate, recent income tax reforms, and GST rationalization. The healthy monsoon further strengthens prospects for the rural economy.

SBICAP Securities maintains that India remains the world's fastest-growing major economy, positioned to become the third-largest global economy by 2030. The firm expects inflation to stabilize within the 3-4% band in FY27, supporting robust 10-11% nominal GDP growth in the medium to long term.

Investment Strategy and Wealth Creation

The brokerage firm believes the risk-reward ratio has turned favorable for long-term investors after a period of market consolidation. SBICAP Securities recommends a disciplined focus on fundamentally sound, profitable businesses, projecting a healthy 12-14% CAGR over the long run across large, mid, and small-cap segments.

Regarding private capital expenditure, investment is flowing into high-growth sectors including new-age technology such as data centers, artificial intelligence, and cloud infrastructure, along with PLI-driven manufacturing and premiumization themes.

Budget 2026 Recommendations

SBICAP Securities has outlined three key recommendations for Budget 2026 aimed at enhancing long-term wealth creation and market participation:

The firm emphasizes that the proposed long-term capital gains tax rationalization should serve as a calibrated behavioral nudge to reward longer holding periods with reduced tax rates. This approach aims to incentivize financial discipline, broaden market participation, and support overall market stability.

Risk Factors and Market Structure

While maintaining a positive outlook, SBICAP Securities remains vigilant regarding potential risks including domestic liquidity support requirements for capital markets, volatility in global crude oil prices, and extended timelines in international trade negotiations.

The company views the current phase as offering abundant wealth creation opportunities for investors adopting a bottom-up approach, though it recommends moderating near-term expectations while focusing on long-term fundamentals.

As investors navigate market uncertainties and prepare investment strategies for 2026, building a well-balanced portfolio has emerged as a critical priority. Following a volatile year marked by record highs and sharp corrections, asset allocation strategies are gaining renewed focus among market participants seeking sustainable wealth creation.

Market Outlook for 2026

Sunny Agrawal, Head of Fundamental Research at SBI Securities, presents an optimistic view for 2026, citing multiple favorable factors. The outlook is supported by expected acceleration in earnings growth to double digits for FY27 and FY28, following low single-digit growth in FY26.

Key market positives include comfortable Nifty50 valuations trading at 1-year forward P/E multiple of 19.00-20.00x compared to 22.00-23.00x during the September 2024 peak. Additionally, valuation premium compression over MSCI EM index has reduced from 80% in September 2024 to 47% in December 2025, falling below the 10-year average of 57%.

Sectoral Opportunities and Themes

For 2026, multiple sectors are positioned to benefit from structural demand and policy support:

• Auto and auto ancillaries: Expected to gain from robust demand, EV adoption, and premiumization trends
• Telecom: Stands to benefit from tariff hikes and increasing data consumption
• Financial services: Including NBFCs, banks, AMCs, and wealth managers, likely to outperform on strong credit growth and rising retail participation
• Metals and mining: Benefiting from global demand recovery
• Pre-engineered buildings: Linked to industrial and infrastructure development
• Consumption plays: Including hotels, jewellery, liquor, and dairy
• Railway wagons and OMCs: From public capex initiatives
• IT and pharma-CDMO sectors: With steady global demand

Precious Metals and Currency Dynamics

Gold and silver performance in 2026 will depend on central banks' diversification strategies toward precious metals as US dollar hedges. With US debt at $36.00 trillion, increasing de-dollarization trends could boost precious metals demand. Silver consumption is expected to rise due to requirements across new-age industries.

Regarding currency movements, the rupee's depreciation is driven by persistent FPI selling and trade deficit concerns. With forex reserves of approximately $700.00 billion covering 11 months of imports, the probability of a rupee run remains low despite recent 6.50% depreciation since May 2025.

Optimal Asset Allocation Strategy

For investors aged 30-40 years planning to deploy ₹10.00 lakh in 2026, Agrawal recommends a growth-oriented allocation leveraging higher risk appetite and longer investment horizons.

This allocation maintains strong growth orientation while embedding risk mitigation and diversification elements. The strategy requires periodic rebalancing aligned with financial goals and market dynamics.

Key Market Triggers for 2026

Several catalysts could drive equity market performance in 2026:

• A favorable US trade deal would boost exports and ease geopolitical tensions
• Acceleration in corporate earnings growth, particularly in banking, infrastructure, and manufacturing sectors
• Policy continuity with reform focus, maintaining capital expenditure-led growth while adhering to fiscal prudence
• A meaningful pickup in private capex, signaling improved business confidence and economic sustainability

Investment Lessons and Market Dynamics

The volatile 2025 market provided valuable lessons for investors, particularly newcomers who experienced their first significant correction post-COVID. Key takeaways include:

• Understanding that risk can emerge from any system component
• Stock prices tend to revert to long-term averages after extreme movements

The IPO market's momentum, crossing the 100-mark milestone and raising nearly ₹2.00 lakh crores, reflects strong investor appetite. This trend is expected to continue in 2026, supported by robust SEBI-approved DRHP pipelines and adequate market liquidity, though investor selectivity toward quality companies with strong fundamentals will remain paramount.