It has been a trying year for the Indian markets as they dealt with headwinds at the global and domestic level.
Christopher Wood, global head of equity strategy at Jefferies, tells
Puneet Wadhwa in a telephonic conversation that India’s relative performance in 2026 will depend less on domestic factors and more on what happens to the global AI trade. Edited excerpts:
How has 2025 played out in retrospect for you in terms of global financial markets? From a US standpoint, 2025 has been all about artificial intelligence (AI)—specifically AI-related capital expenditure. That has clearly been the dominant theme. However, while the US market has continued to perform well in absolute terms, it has technically underperformed on a relative basis.
That relative underperformance is partly because current and emerging markets have had a good year. But India stands as it has seen one of the worst performances relative to Asia and emerging markets (EM) in many years.
Were you surprised by the Indian market’s relative performance? No, I’m not surprised that India traded sideways. At the end of the day, that’s what the market has done—it’s moved sideways. What did surprise me, though, is the extent of the currency weakness. There has been a lot of (paper) supply, which has largely been absorbed by domestic flows. That was broadly what we expected. But the weakness in the rupee has been greater than I anticipated, and that has clearly contributed to India’s underperformance.
ALSO READ | Nifty could outrun S&P in 2026, mirror earnings growth: Amish Shah, BofA Why do you think policymakers are allowing the currency to slide? I'm not entirely clear on that. I honestly don't know whether this is a deliberate policy choice or whether something else is going on. I thought the currency would not weaken beyond 89 to the dollar. So, the move has surprised me. I didn't see the logic in letting the currency go beyond 89, because beyond that it starts to feel destabilising.
How do you see Indian markets playing out in 2026? I'm hoping for a cyclical pickup in India. Ideally, we should see some improvement in earnings and a cyclical pickup in growth. Given all the easing that has taken place, which should happen.
What are the key risks to that outlook? India's relative performance will depend less on domestic factors and more on what happens to the global AI trade. If the AI trade keeps booming through next year, that would be a negative for India.
My base case, however, is that by the middle of next year, markets will start demanding more evidence about where returns will actually come from. Korea, Taiwan, and China—especially Korea and Taiwan—are all geared into the AI trade to varying degrees. That has driven EM performance.
ALSO READ | Bulls can take Nifty 24% higher to 32,032 levels by Dec 2026: Kotak Sec Sensex is completing 40 years. Has it lost relevance compared to the Nifty? It does seem that way, though I'm not entirely sure why. But it's clear that people don't look at the Sensex as much as they used to. Part of it is probably habit, and part of it could be because the Nifty has more stocks—50 versus 30 for the Sensex. Also, Gift Nifty futures give an early indication of market direction, which has increased the Nifty’s relevance. There's no doubt that the Sensex has lost out to the Nifty in terms of perception over recent years.
India doesn't have many AI-linked stocks or gold miners, both areas you've been bullish on globally. Is that a negative for India from an FII perspective? What's actually happening is quite interesting. Investors have been buying India as a hedge against the AI trade blowing up. In that sense, India has become the “reverse AI trade.”
Do you expect this to continue? There is definitely a risk next year. To me, the big risk for AI-led markets is that, at some point, investors will start to question more meaningfully where the actual returns are going to come from. That’s the key risk.
Could the rupee hit 100 against the US dollar? It’s a possibility, but it wasn’t what I expected. I thought 89 would be the bottom. My confidence in that view has been shaken somewhat. It wouldn’t be good for the India story if the currency were to go to 100. What puzzles me is that real rates are still positive, so I don’t fully understand why the currency has been so weak.
ALSO READ | '2026 offers a strong case for foreign investor sentiment revival' What’s driving the weakness then? There have been significant outflows—private equity exits and foreign investor selling. The positive point is that at some stage, foreign investors will conclude that the currency has bottomed, which should encourage them to buy equities. Interestingly, equities themselves haven’t corrected much. They’ve mostly traded sideways. As of now, the rupee is around 89.5, and for me, the psychological level is 90.
Last year, you had forecast 10–15 per cent returns for Indian markets, which surprised many. Is another 10–15 per cent possible in FY26? The 2025 performance is roughly in line with the 10–15 per cent return expectation. If we see a cyclical pickup in earnings, the Sensex can give another 10 – 15 per cent from here on. That would put the Sensex really close to my long-term target of 100,000. It can hit the 100,000 mark as well, but for that, cyclical upswing and earnings growth is needed. Currency returns might be lower, but in equity terms, the level is achievable.
What about gold and silver in 2026? I remain bullish on gold, particularly gold mining stocks, which have already done very well. Gold can correct at any time after such a strong run, but fundamentally, the backdrop remains bullish. And of course, India has significant household gold holdings, which is a positive factor.
Final takeaway for investors? The big picture is that India is the reverse AI trade. The key uncertainty remains the currency, but if that stabilises and growth improves, India can deliver respectable returns.
 "Sensex can hit 100,000 in 2026 if earnings pickup: Chris Wood")
