Emkay sets Nifty 2026 target at 29,000; sees select SMIDs generating alpha

In the worst-scenario, though, Emkay Global warns that Nifty may hit 25,000 in Q1-2026. Rupee weakness, and US tariff uncertainy remain key risks

Stock market outlook 2026 by Emkay Global

 

Calendar year 2026 could be a "comeback year" for the Indian stock market, predict analysts at domestic brokerage firm Emkay Global Financial Services, as they set Nifty50's December 2026 target at 29,000 - an 11 per cent upside from the index's Wednesday closing level.

 

The rebound in equity returns, the brokerage opined, would be reinforced by favorable earnings momentum and a thinner valuation premium (versus Bloomberg World Index).

 

Acceleration in the reform momentum, aided by a relatively light election calendar, and India’s relatively stronger macro position compared to western-world slowdown, are other tailwinds for the markets in 2026.

 

"The icing would be AI trade petering out in 2026 – India's lack of exposure works in its favor," Emkay Global said.

 

Emkay Global Nifty target in 2026

According to the brokerage, the 50-stock index could touch 29,000-mark in their base case scenario. This target is based on an exit multiple of 21x and 10.9 per cent potential returns, similar to the 9.7 per cent returns in CY25.

 

In their bear-case, they see Nifty at 24,500-25,000 in Q1-CY26, if earnings were to disappoint.

 

Nonetheless, the brokerage remains confident of the earnings delivery in FY27 as all four markers—current account deficit, fiscal deficit, bank balance sheets, and corporate balance sheets—continue to be well in the green.

 

"This will drive elevated valuations. Besides, our anticipation of robust domestic and foreign flows during the year (probably back-ended) should also help valuations," it said.

 

Notably, the brokerage expects small and mid-cap stocks (SMIDs) to outperform this year.

 

"Smaller companies are delivering better growth across multiple sectors (staples, financials, tech), which carry higher scope for alpha. Undeniably, the elevated valuations imply that investors will have to practice more caution while stock-picking in the SMID space," Emkay Global said.

 

The brokerage has added Lenskart, Tata Motors CV, RBL, HDFC Bank, Craftsman Automation, Larsen and Toubro, and Hexaware to its India portfolio.

 

It has removed TVS, Max Healthcare, Indigo, Kajaria Ceramics, Coforge, Radico Khaitan, Ultratech Cement

 

Why is Emkay Global bullish on India?

From a macroeconomic perspective, Emkay highlights that India enters 2026 from a position of relative strength. Inflation has moderated from earlier peaks, the current account deficit remains manageable, and fiscal consolidation is progressing gradually without compromising growth priorities.

 

Monetary policy, it said, is expected to remain broadly supportive, with limited downside risks to liquidity conditions, although aggressive easing is unlikely unless global growth weakens materially.

 

"The RBI has cut rates by 125bps over 2025, and we do not rule out an additional 25-50bps cut if inflation undershoots in Q1CY26. These rate cuts have been spotty so far and have been hampered by the RBI's defense of the rupee. We expect further transmission through 2026, as the liquidity situation eases, which would act as further fillip to growth," Emkay noted.

 

The brokerage expects credit growth to accelerate from ~11 per cent in FY26 to 13.5 per cent in FY27E on stronger demand; private consumption to accelerate Q4-CY25 onwards; and Government-led capex to gain momentum along with revival in corporate capex.

 

On the valuation front, Emkay cautions that large-cap indices are trading closer to long-term averages after recent consolidation, while pockets of the market -- particularly select mid- and small-cap stocks -- continue to reflect elevated expectations.

 

"The Nifty 1-year forward valuations stand at 20.6x, close to +1-standard deviation above the 5-year average. The Nifty SmallCap trailing twelve month P/E ratio has also pushed above the 5-year average to 32x, though the MidCap100 and SmallMid400 continue to trade at a discount. Nevertheless, Indian equities continue to be an attractive investment," Emkay said.

 

It added: While we anticipate large caps to provide stability and downside protection, pockets of attractively-valued SMIDs will provide alpha.

 

Emkay Global investment strategy 2026

Emkay favours areas where earnings visibility, balance sheet strength and reasonable valuations converge.

 

It sees three key themes for 2026: i) Discretionary consumption, which is largely playing through autos/auto ancillaries. ii) New-age/internet businesses, where continued growth and disruption of existing incumbents could drive hyper-growth and improve profitability. iii) SMID private banks/NBFCs, where the recent wave of strategic investments will accelerate their growth potential in a favorable environment.

 

Its top picks for 2026 include Lenskart, Eternal, Tata Motors CV, Shriram Pistons and Rings, and IDFC Bank.

 

Word of caution

That said, Emkay Global cautioned against elevated near-term risks.

 

Financial stability concerns, persistent rupee weakness impairing domestic liquidity conditions, and weak monetary transmission, it said, are key overhangs on the market.

 

"At the same time, rising fiscal pressures are feeding into higher long-end yields, hence further tightening the financial conditions. The confluence of stress across money markets, bonds, and the currency amounts to a classic bearish 'perfect storm', likely to weigh on the risk appetite and suppress incremental flows from both FPIs and DIIs," it said.

 

We see limited relief till currency pressures ease decisively; this in our view hinges on the conclusion of a US trade agreement, Emkay added.