Amid Global Risks How Will India's Equity Market Fare In 2026?

After a volatile period for India's equity market in 2025, Axis Bank's 'Investment Perspectives' report noted that the south Asian nation enters 2026 with a constructive outlook, supported by easing inflation, rate cuts, GST reductions, and stable valuations, despite global risks and muted private capex.

India’s valuation premium over global peers has narrowed and stabilised, creating a favourable backdrop for long-term investors.

Equity Market Overview 2026 

▪ Indices showed resilience in CY25, but underlying portfolios largely struggled. The Nifty 50 index gained over 10%, while the Nifty Mid Cap 150 was up by 5.4% and Nifty Small Cap 250 ended in negative territory. Experts anticipate improved performance in 2026, supported by healthy earnings, robust economic growth, and prospects of an India–US trade deal.

▪ Union Budget 2026 likely to focus on inclusive growth, boosting consumption, manufacturing, and capital market reforms while balancing fiscal prudence.

▪ Market sentiment remains optimistically cautious. Large-cap stocks offer relative safety, while domestically focused sectors are expected to outperform export-driven ones amid trade deal uncertainty. Short-term turbulence may persist, but India’s long-term investment outlook remains strong.

▪ For CY26, market returns should align with earnings growth. Outlook remains constructive, supported by improving consumption, stable macro conditions, strong domestic liquidity, and easing geopolitical gridlock. A staggered accumulation strategy is prudent for mid and small caps to manage volatility.

“We maintain a positive bias towards the Indian equity markets. Investors can consider investing in equities with a 3-to-5-year investment perspective,” according to an Axis Bank report. 

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Q3FY26 Market Performance

• Market returns in CY26 are expected to remain healthy and broadly aligned with earnings growth, supported by improving consumption, stable macro conditions, strong domestic liquidity, and easing geopolitical gridlock.

• Risks may arise from external factors, including a slowdown in AI capex impacting earnings and global markets, delayed geopolitical resolutions, interest-rate volatility, potential Fed delay in easing, and inflation re-acceleration.

• In Q3FY26, Indian markets underperformed global peers, with Nifty 50 gaining 3.5% versus S&P 500’s 6.2% and FTSE Emerging Index’s 7.0%, while the broader market lagged further.

“We remain constructive on the short to medium end of the yield curve. Short Duration funds, Banking & PSU Debt funds, Corporate Bond funds, Medium Duration funds, Money Market funds, Low Duration funds and Ultra Short Duration funds can be considered by investors with an investment horizon commensurate with the maturity profile of the schemes, ” as per a brokerage note.

“Investors can consider investing in Medium Duration as per their risk appetite with an investment horizon of at least 2-3 years to avoid any intermittent volatility,” it said.