Sensex growth of 10-11% in sight despite global and tariff risks: U R Bhat

Strong domestic growth and infrastructure spending could help the Sensex deliver 10-11% annual returns, barring major geopolitical shocks, says Alphaniti's U R Bhat

U R Bhat, cofounder and director of Alphaniti Fintech

5 min read Last Updated : Dec 14 2025 | 10:58 PM IST

Strong domestic growth, deeper formalisation and digitisation, and sustained infrastructure spending should continue to support markets, says U R Bhat, cofounder and director of Alphaniti Fintech. In a telephonic interview with Sundar Sethuraman, Bhat says that barring major geopolitical shocks, the Sensex could deliver low double-digit returns — around 10–11 per cent annually — despite current tariff pressures. He also reflects on how India’s markets have evolved over the past four decades. Edited excerpts:

What is your outlook for the market in 2026? What are the headwinds and tailwinds?

The key headwind is the 50 per cent US tariff on Indian goods, which remains a major uncertainty. At 50 per cent, it’s manageable; if it rises to 60–70 per cent or higher, it could hurt. Geopolitical risks — US domestic politics, China–India tensions, Pakistan flare-ups — also pose challenges. India, however, is confident economically, politically, and militarily, and the US will have to recalibrate its approach.

Tailwinds include strong domestic growth, increasing formalisation and digitisation, and sustained infrastructure spending of around ₹15 trillion annually. Stable taxation, despite rising government capital expenditure, will support capital formation and index performance.

Assuming no major geopolitical shocks, low double-digit Sensex growth — 10–11 per cent annually — is achievable even under current tariffs.

Sensex is now four decades old. What does its journey tell us about the evolution of India’s economy?

The Sensex mirrors India’s transformation from a monsoon-dependent agrarian economy dominated by a few industrial houses to a diversified, investment-heavy economy led by first-generation entrepreneurs.

It also reflects the maturing market for “risk capital”. Earlier, industries relied on term-lending institutions for debt and disguised equity. As markets deepened, access to genuine equity capital expanded dramatically.

In 1980, agriculture made up nearly 40 per cent of GDP, manufacturing 25 per cent, and services 35 per cent. Today, agriculture is below 20 per cent, manufacturing 28–29 per cent, and services over half. Sensex composition has shifted accordingly, from old industrial houses to a diversified index.

Over 40 years, the market has compounded at around 15 per cent annually. What policy shifts enabled this?

The biggest milestone was the economic liberalisation of 1991–92, which opened India to global capital, ended the licensing regime, and modernised regulation. Electronic trading, depositories, and credit rating agencies followed.

Market crises also shaped reforms. After Harshad Mehta, electronic exchanges and depositories were built; after the Ketan Parekh episode, fair-trading regulations were strengthened. Opening to foreign institutions further raised transparency and governance standards, upgrading the market infrastructure.

After liberalisation, GDP grew around 5 per cent in real terms and in the low-to-mid teens nominally. Historically, equity returns track nominal GDP over the long term, and the Sensex reflected this trend.

If you divide the last 40 years into phases, what were the turning points for capital markets?

The 1991–92 liberalisation modernised markets, deregulated sectors, and improved foreign investor access. The Y2K (Year 2000) period marked India’s information technology emergence, attracting global business and building the middle class, transforming cities like Bengaluru, Hyderabad, and Chennai.

Earlier reforms were often externally forced — by crisis or institutions like the International Monetary Fund. From 2014 onwards, reforms became internally driven. The government modernised roads, railways, ports, and airports, creating a vendor ecosystem that strengthened equity markets. Each phase added a layer to India’s capital market development.

How accurately does the Sensex reflect the economy?

Short-term, it behaves as a sentiment gauge — volatile and reactive. Medium- to long-term, it closely tracks nominal GDP growth. India’s nominal GDP should continue to grow in healthy double digits, driven by population growth, rising living standards, and the shift towards services and modern manufacturing. The Sensex will follow this trend.

Some companies have remained in the Sensex for decades, while others fade away.

Only four or five original companies remain; the rest have been replaced every decade as sectors evolve or leadership shifts. The Sensex captures the changing structure of the economy and the maturing of capital markets.

What differentiates survivors from the rest?

Adaptability. Reliance began as a textile manufacturer but pivoted into petrochemicals, refining, retail, and telecommunications. ITC diversified from cigarettes into paper, agriculture, and fast-moving consumer goods. Tata Steel transformed from one of the world’s most inefficient producers into one of the most efficient. Companies that fail to adapt — like many textile mills from the 70s and shipping firms from the 80s — disappear. Benchmark indices reward those who reinvent themselves in line with economic demands.