After lackluster 2025, expectations of earnings pickup, likely trade deals fuel renewed hope among stock market investors- The Week

For stock market investors in India, 2025 was generally a lackluster year. Unlike major global markets that saw a strong rally, Indian equities witnessed tepid returns. While the BSE Sensex gained just about 9 per cent and the NSE Nifty 50 rose 10 per cent, smallcaps actually declined around 8 per cent. In contrast, the US S&P 500 index rose 17 per cent, the Brazilian market gained 34 per cent, and South Korea’s Kospi index jumped 76 per cent.

Nonetheless, as we begin 2026, there is now a renewed hope among Indian investors that things will turn out better this year, with potential signing of trade deals with the US and Europe, and corporate earnings set for a recovery. Besides, with Indian equity valuations now looking more reasonable compared with global markets, the expectation is that foreign institutional investors will start finding India attractive again after a massive sell-off in 2025.

Last year, foreign portfolio investors pulled out close to $19 billion from India’s equity market amid geopolitical tensions and the uncertainty around the US-imposed trade tariffs. The US administration imposed 50 per cent tariffs on Indian goods imports, which put the country at a considerable disadvantage to other exporting countries, including China. However, the domestic economy remained strong, with consumer goods seeing strong festive sales, after the government announced major income tax relief, and the GST council slashed the Goods and Services Tax on many products.

Dinshaw Irani, the MD and CEO of Helios Capital Management India, feels policy measures undertaken in 2025 will lead to earnings pickup this year and therefore 2026 appears more promising.

“Given the low base of previous periods, the earnings growth of the small-cap universe particularly will clock high growth rates. Additionally, the lower levels of inflation will further support this segment to outperform the broader market,” said Irani.

The outlook for 2026 appears constructive, with steady market growth expected on the back of an earnings recovery, improving liquidity, and a gradual revival in private sector investment, according to Ajay Menon, MD and CEO of Motilal Oswal Financial Services.

“Key opportunities are likely to emerge in financials, supported by healthy credit growth, improving return ratios, and strong balance sheets. Consumption-oriented sectors such as automobiles and discretionary goods should benefit from improving demand, while industrials and capital goods are well positioned on account of infrastructure spending and localisation initiatives,” noted Menon.

Sukumar Rajah, senior MD, director of portfolio management, Templeton Global Investments and Murali Yerram, portfolio manager at Templeton Global Investments, also believe India is poised for an earnings recovery this year, as supportive fiscal and monetary policies continue to underpin the resilience of domestic consumption.

“Over the coming months, we expect earnings growth among domestic-facing and consumption-related sectors—such as consumer staples, consumer discretionary, and autos —to accelerate in the second half of the current financial year. Entering financial year 2027, earnings growth will likely be more broad-based, with resilience shown across both domestic and export-oriented sectors,” they said.

Between January and November 2025, MSCI India only gained 4.8 per cent, while the MSCI Emerging Markets index returned 30.4 per cent.

“The price-to-earnings premium of Indian equities has shrunk sizeably in tandem, and their valuations now appear more compelling, particularly relative to certain red-hot emerging markets,” pointed out Rajah and Yerram.

According to them, there are sufficient policy tailwinds for consumer spending growth and private sector capex recovery going ahead. External headwinds may also ease as the India-US trade relations potentially improve, they noted. They remain hopeful that a deal will materialise in early 2026, removing a key overhang for India’s outlook.

Navneet Munot, the MD and CEO of HDFC AMC, also believes relative valuations, competitive rupee, steady macro, and earnings revival set a better pitch for Indian equities this year.

Another record year for IPOs?

Despite the volatility in the stock market, 2025 marked a record year for initial public offerings, with 103 companies raising close to ₹1.76 lakh crore from the primary market. This was more than the nearly ₹1.60 lakh crore raised by 91 companies in 2024, according to Prime Database.

There were several big-ticket IPOs in 2025. In the largest fundraising by a Tata Group company, Tata Capital raised ₹15,511 crore. Rival non-banking finance company HDB Financial Services raised ₹12,500 crore. Elsewhere, consumer electronics major LG Electronics India raised ₹11,607 crore and ICICI Prudential Asset Management raised ₹10,602 crore going public.

Software firm Hexaware Technologies, eyewear startup Lenskart Solutions, e-commerce company Meesho, and Billionbrains Garage Ventures, the parent company of fintech platform Groww, were the other major IPOs in 2025.

With a strong pipeline, 2026 could well be another record year for the primary market. According to data from Prime Database, some 100-odd companies are holding approval from the market regulator SEBI to launch their initial public offers.

Mahavir Lunawat, the chairman and MD of Pantomath Capital, India’s IPO market today reflects structural maturity rather than cyclical exuberance.

“The simultaneous rise in issuance volumes, average deal sizes, and institutional discipline indicates a durable capital-raising framework,” said Lunawat.

Pantomath expects over Rs 4 lakh crore worth of IPO pipeline in 2026.

Reliance Jio, the telecom arm of Mukesh Ambani’s Reliance Industries, is likely to be the biggest IPO this year. Fintech platform PhonePe, SBI Funds Management, solar tech firm Avaada Electro, and quick commerce company Zepto are among other major likely IPOs this year. Walmart-owned e-commerce giant Flipkart, Prism, the parent of hospitality tech platform Oyo, and AI unicorn Fractal Analytics are among the other major companies expected to go public this year.