Market expert Ajay Bagga has outlined a positive outlook for the Indian economy and markets, identifying three key policy measures that are expected to drive stronger performance in the coming year. According to Bagga, the combination of fiscal and monetary support is creating a foundation for significant improvement compared to previous performance.

Triple Policy Support Framework

Speaking to ET Now, Bagga described the current economic environment as benefiting from what he termed "triple boosters" implemented by the government. These policy measures include:

• Income tax cuts
• GST reductions
• RBI rate cuts

"See, overall, the economy will do much better than last year. There is a pickup coming in and there are triple boosters that the government has unleashed," Bagga explained during the interview.

Monetary Policy Flexibility

Bagga highlighted that the Reserve Bank of India now has greater room to implement further rate cuts due to reduced external pressures on the currency. "We are expecting more RBI rate cuts because they have handled the rupee depreciation quite well and the pressure is off with the appreciation in the yuan. So, the competitive pressure on the rupee is off and that is creating space for the RBI to cut rates more," he noted.

While banking results for the December quarter may remain subdued, Bagga expects the benefits of lower interest rates to become evident in subsequent quarters. "This quarter, the gone quarter, December, the banking results will not be that great but going ahead we are expecting those rate cuts to start boosting the economic momentum and that will help the banking and financials to perform this year," he said.

Economic Growth Projections

Bagga expressed optimism about the broader economic trajectory, particularly regarding nominal GDP growth. He expects nominal GDP to reach double digits, which aligns with government budget assumptions.

"The budget maths had factored in a 10% nominal GDP growth. We are nearer to 9% right now. We are expecting that next year we should touch that double digit nominal growth again, that then translates into 14-15% earnings growth for the key sectors," Bagga explained.

Sectoral Outlook and Leadership

Bagga identified financials as the primary sector expected to lead the market rally. "So, we are expecting financials to lead this charge," he said, while highlighting several other sectors positioned for strong performance:

Energy and Infrastructure Sectors:

• Power companies
• Energy companies
• Oil and gas sector

Technology Sector: Technology stocks may find renewed support if global monetary conditions continue to ease. "It, we are expecting with the US rate cuts more space to be created for further orders, so you could see traction picking up in it as well," Bagga noted.

Consumption Theme: Bagga identified automobiles as a key beneficiary of the consumption recovery. "Auto is leading the India consumption theme. I think that is a good way to play the India consumption theme through auto," he remarked.

Government-Linked Sectors: Infrastructure-related sectors such as railways and defence will depend on government spending signals, particularly in the upcoming Budget. "Railways, defence will again depend on the government infra spend. We are expecting the defence budget to go up. So, defence stocks will probably rally into the budget on that anticipation," Bagga said.

Market Assessment

Bagga's overall assessment suggests that while pockets of market exuberance remain, the broader optimism is increasingly supported by macroeconomic improvements, policy support, and expectations of earnings growth revival. "So overall, this is looking a quite robust year for the Indian markets," he concluded, emphasizing the shift from short-term volatility concerns to fundamental economic drivers that could shape the market trajectory.

DBS Bank economist Taimur Baig has projected a significant acceleration in India's nominal GDP growth, forecasting a jump to 10% for calendar 2026 from 9.2% in 2025. Speaking to ET Now, Baig outlined a cautiously optimistic assessment of the Indian economy, suggesting the growth slowdown witnessed in the first three quarters of 2025 is now behind the country.

Economic Recovery Indicators

Baig highlighted improving retail indicators as evidence of the economy's strengthening fundamentals, particularly pointing to car sales data that demonstrates robust consumer sentiment. "Retail sales numbers… particularly with respect to car sales, show that there is purchasing capacity, there is strong enough sentiment to propel the economy into a higher plane, let us say high sixish underpinned by robust investment and consumption trajectory for 2026 and beyond," he stated.

The economist believes the existing policy framework provides adequate support for growth acceleration, arguing against the need for aggressive policy intervention. He noted that current measures around income tax, GST, investment incentives and external conditions already establish a solid foundation for economic expansion.

Nominal GDP Growth Projections

Baig expects the nominal GDP improvement to be driven by a turnaround in the deflator rather than ultra-low inflation. This incremental upside is projected to strengthen the outlook for equities, earnings growth and overall nominal expansion across the economy.

Foreign Investment and Market Dynamics

Addressing concerns about foreign institutional investor outflows, Baig offered a contrarian perspective, describing the recent FII exodus as constructive for long-term market development. He argued that India's strong equity performance in 2023-24 helped establish credible exit track records, which proves crucial for private equity and venture capital investors.

"Nothing beats a track record," Baig emphasized, noting that spillover effects from earlier market strength continued supporting private capital activity even during periods of muted headline equity returns. On liquidity conditions, his assessment was unequivocal: "It is ample," indicating no constraints for business planning or capital market activity.

Currency and Global Context

Regarding rupee weakness concerns, Baig acknowledged some worry but emphasized that currency volatility remains within historical norms. He noted that compared to peers like the Indonesian rupiah, the INR's movement represents "not that big a deal" in global terms.

Baig expects the US economy to continue surprising positively in the near term, supported by strong consumer balance sheets among the top half of the population. However, he stressed the growing importance of non-US supply chains and demand across Latin America, the Middle East, Africa, Europe and Asia, with non-US trade potentially expanding close to high single digits.

Investment Outlook

Looking ahead to 2026, Baig identified valuation rather than liquidity as the decisive factor for capital flows between emerging and developed markets. Drawing parallels with China's experience, he noted how deeply depressed valuations eventually attracted capital despite geopolitical tensions.

With India having experienced lacklustre equity performance while maintaining decent earnings and growth, Baig believes valuation screens will soon start "turning green" for Indian markets. He anticipates renewed global investor interest, expecting significant discussion about India during his spring visits to the US, similar to the attention China received previously.