India's outlook in 2026 looks better than in 2025: Axis MF's Ashish Gupta

Axis MF CIO Ashish Gupta says global markets are defying old correlations, while India lags for now but looks better placed in 2026 on earnings and valuations

Patterns seen last year are extended, with global markets across asset classes — equities, gold, silver and even bitcoin — climbing, while Indian markets continue to lag, says Ashish Gupta, chief investment officer, Axis Mutual Fund. In an interview to Abhishek Kumar and Samie Modak, Gupta says India’s outlook this year looks better than in 2025 on the earnings and valuations front. Edited excerpts:

 

How do you assess market performance over the past year and early this year?

 

On the surface, markets looked reasonable but beneath the headline number, the market was far weaker. Median returns were negative 4 per cent, and the NSE 500 small-cap index was down around 6 per cent. The relative underperformance was even more striking. Global markets rose nearly 30 per cent. Against that backdrop, India significantly underperformed, even though a 10 per cent Nifty return is respectable in absolute terms. So far this year, the same pattern seems to be continuing. Global markets across asset classes — equities, gold, silver, even bitcoin — are moving up, while India continues to lag.

 

How are global macro signals behaving, especially currencies and bonds?

 

It is an unusual phase because several historical correlations are not holding. Markets also appear largely indifferent to rising geopolitical risks, including developments in Venezuela and Iran. One area where uncertainty is showing up is bond markets. Term premiums have risen globally. Despite rate cuts in both the US and India, long bond yields have not declined meaningfully. In the US, the 10-year yield is still around 4.2 per cent, even after multiple rate cuts. In India, the 10-year yield is about 6.7 per cent, nearly 20 basis points higher than levels before the October 2025 rate cut. This reflects a rise in global risk premium, even as equity markets remain resilient.

 

Why have global equity markets remained strong despite these risks?

 

Global growth has held up far better than expected. At the start of last year, many expected US growth to slow sharply due to higher tariffs, policy uncertainty and inflationary pressures to emerge. None of that played out. AI-related capital expenditure has supported growth, but more importantly, even as the US fiscal deficit did not expand, US GDP growth remained strong on the back of robust retail spending. Inflation, despite tariffs, remained under control, including goods inflation. Recent US inflation nowcasting indicates inflation is likely to moderate further. In fact, US nominal GDP growth in the last quarter was around 8 per cent, similar to India’s. Global PMIs and economic lead indicators continue to signal economic strength, which has supported equity markets.

 

How does India look comparatively in 2026 versus last year?

 

India’s outlook in 2026 looks better than in 2025 on two fronts — earnings and valuations. Earnings growth is recovering. After six quarters of disappointment and downgrades, we are now likely to see double-digit earnings growth. On valuations, India’s premium to emerging markets has moderated and is now below long-term averages.

 

The key concern remains capital flows. The current account deficit is manageable at 1–1.5 per cent of GDP, but capital account flows — FDI, debt flows and FPI flows — have softened. FPI selling last year was close to $18 billion, which affects currency and macro sentiment. The positive is that inflation has remained under control despite weak flows and a softer rupee, giving the RBI more flexibility on rates and liquidity.

 

Could a reversal in global themes improve India’s relative performance?

 

Global markets have already broadened beyond the AI trade. In the US, only two of the ‘Magnificent Seven’ outperformed the broader market last year. Small caps in the US are making new highs, and Europe has also benefited from higher fiscal spending. As valuations in global markets start to look high and markets lose steam, India’s relative attractiveness could improve.

 

What are your expectations from the Union Budget?

 

There is no single Budget trigger that will decisively move markets. Much of the reform work has already happened outside the Budget, including GST-related changes. The key will be fiscal management — supporting domestic growth while maintaining macro stability through fiscal consolidation. This becomes more critical because nominal GDP growth is now closer to 9–10 per cent rather than 12–13 per cent, reducing the government’s fiscal flexibility. Stability in taxation policy is also important. Frequent changes may not be beneficial at this stage.

 

How are you positioned sectorally amid uncertainty?

 

Financials are a key focus. Credit growth has picked up sharply — from 8–9 per cent earlier to over 14 per cent. Both banks and NBFCs are beneficiaries. Margin compression is largely behind us, and margin recovery should begin over the next few quarters. Credit costs for NBFCs are also expected to ease. Autos are another beneficiary of rate cuts and GST rationalisation. We are also seeing early signs of a consumption revival, particularly in rural areas after a good monsoon. While recovery is uneven, discretionary consumption has started improving in pockets. Capital markets remain attractive as regulatory headwinds have eased and new listings have expanded the opportunity set, including exchanges. We are positive on power (especially transmission) and defence, despite recent corrections, as structural drivers remain intact. Metals have been added tactically, reflecting an improving global commodity cycle.

 

What is your view on the IT sector?

 

We remain cautious. Fears of complete AI disruption have moderated, and companies are building AI capabilities. Recent results have also eased concerns on further moderation in revenue growth in the near term. However, AI also has a deflationary impact on traditional IT services. Revenue growth is unlikely to return to double digits sustainably. IT remains a tactical, valuation-driven play rather than a structural overweight.