A report from HDFC Securities predicts a promising year for India in 2026, characterized by double-digit nominal growth, stable currency, and reduced global risks. Sectors like metals, BFSI, capital goods, and defense are poised for growth in the equity market. The report forecasts a Nifty earnings growth of approximately 16% for FY27, with a 2026 return expectation of around 11% and a year-end Nifty target set at 28,720.
The RBI-government efforts, including rate cuts, CRR reduction, and liquidity infusion, are anticipated to bolster domestic demand in 2026. Expectations suggest a reduction in global trade uncertainty, with potential tariff reversals and an India-US trade deal early in the year. The report also points out corrected valuations and low foreign portfolio investor positioning as factors that could lead to upside potential, including short covering.
In 2025, capital flow shifted towards North Asia, while India experienced continuous FII outflows due to valuation concerns, presenting a possible reversal opportunity in 2026. Artificial intelligence (AI) continues to be a significant theme, influencing capital expenditure, productivity enhancements, and global investment trends. The metal sector is expected to benefit from infrastructure development, capacity expansions, and a global commodity upcycle.
The capital goods segment stands to gain from a robust public capex cycle, with healthy earnings visibility, although caution is advised due to valuations. The report also mentions an AI-driven recovery in the IT sector in the second half of 2026 and a gradual improvement in consumption patterns, supported by premiumization strategies. While the investment cycle remains positive in the long term, risks include potential volatility from AI-related expectations and high global debt levels leading to credit events and wider spreads.
Moreover, the report highlights the risk of credit events due to high global debt levels and the impact of a heavy IPO pipeline exceeding Rs 2.5 lakh crore on secondary market liquidity.
