India stands at a unique inflection point. While 2025 brought geopolitical pivots, K-shaped economies, and a flight to precious metals, global GDP held steady at 3.0-3.2%—powered by Big Tech's USD 443 billion capex surge that lifted Asian markets (Korea +69%, Taiwan +26%, Hong Kong +28%) to outperform.
With the Nifty 50 near record highs, RBI's accommodative stance gaining traction, and domestic liquidity at unprecedented levels, 2026 demands more precision.
We begin 2026 with Indian equities at near-peak index levels but with much-improved underpinnings. Valuations have moderated slightly and earnings growth is primed to rebound. Domestic liquidity is very robust, offsetting recent foreign selling. Key vulnerabilities are a rich market-cap-to-GDP and reliance on domestic money – any reversal in local sentiment or a macro shock could test the market’s resilience. Overall, the starting point is one of cautious optimism: macro stable, micro (earnings) improving, and sizeable cash position waiting to participate, but also valuations that leave little margin for error.
GDP growth expected, but equity returns may be moderate (high single digits) as 2026's gains hinge on earnings delivery, not multiple expansion. Focus on high-conviction sectors where earnings visibility and valuation comfort intersect.
RBI delivered a much-awaited policy pivot with 125 bps of rate cuts amid benign inflation. System liquidity remained broadly positive (except Jan-Apr'25) aided by RBI measures. However, longer-end yields stayed elevated as surging state borrowings met declining demand from banks, insurers, and pension funds. Corporate bond markets thrived—narrowing spreads and broader participation in AA and below-AA grades signalled deepening market depth.
We hold a constructive view on short to medium duration maturity curve while maintaining a neutral stance on the longer duration. We continue to hold a positive view on corporate bond allocations which present multiple opportunities with attractive risk reward within the 1–5-year maturity curve.
INR depreciated ~5% against USD in CY'25, and even more against other G7 currencies given the USD Index fell ~10%. Trade tariff overhang, precious metals-driven trade imbalance, export weakness, and large FPI outflows all contributed to INR depreciation.
Stabilization ahead—historical patterns suggest corrections lead to extended calm. INR undervalued on REER terms, with anticipated EU/US trade pacts set to improve trade balance and investor sentiment. RBI's robust reserves (USD 696 Bn) enable timely interventions to anchor currency volatility.
Gold enters 2026 from a position of structural strength. While gains may moderate, persistent central-bank accumulation, elevated sovereign debt and capped real rates should continue to support prices, with inelastic supply limiting downside. Gold is likely to consolidate with a positive bias as a portfolio stabilizer.
Silver’s outlook remains constructive but more volatile, underpinned by long-term industrial demand trends and tight supply. Investment flows may be episodic, but silver continues to offer higher-beta exposure within precious metals.
Crude oil faces a more challenging setup in 2026, with surplus balances, modest demand growth and producer policies capping upside. While geopolitical shocks could trigger short-term spikes, the broader regime points to lower-for-longer prices with episodic volatility.
