 "Market outlook 2026: Earnings, Budget, FII flow, trade deal to drive stocks")
Stock market triggers in 2026: Indian equities delivered a mixed performance in a challenging calendar year 2025, where high valuations, currency volatility, global trade uncertainties, and foreign capital outflows tested investor resilience.
While the benchmark Nifty50 managed to deliver a return of over 10 per cent in 2025, the broader Nifty MidCap 100 saw its returns capped at 5.4 per cent. On the contrary, the Nifty SmallCap 100 fell 5.7 per cent.
Looking ahead, Akshat Garg, head of research & product at Choice Wealth, believes calendar year 2026 is likely to be a stock-picker's market where fundamentals and discipline could reward investors more than chasing the momentum.
In this backdrop, here are the key factors that investors should watch in 2026:
US-India trade deal:
A trade deal is expected to be finalised between India and the US next year. With the government expecting a trade pact that "restores deeper market access for domestic exporters", analysts believe further delays could materially impact exports and employment, particularly in labor-intensive sectors such as apparel and gems and jewelry.
Earnings recovery:
A broad-based recovery in corporate earnings, analysts believe, could aid the markets' valuations and, therefore, uptrend in the coming year. Consensus estimates suggest a meaningful rebound in earnings growth ahead, likely accelerating to 12-15 per cent year-on-year (Y-o-Y) over FY26–27.
According to Mitesh Dalal, head of broking at Sanctum Wealth, the market has already factored in the earnings growth over FY26–27, and any slowdown in consumption, margin pressures, or weaker-than-expected capex could lead to earnings downgrades.
Budget 2026:
The roadmap for fiscal consolidation, capex momentum, and reform continuity, as presented in the Union Budget for financial year 2026-27, will be crucial to sustain investor confidence. "Central government's capex can take a back seat in the wake as the revenues get impacted due to goods and services tax (GST) rate cuts, personal income tax cuts, lower capital gains tax for FY26, amid requirements for higher allocation on the defence sector," reckons Dalal.
Geopolitics and commodities:
Akshat Garg of Choice Wealth believes geopolitical trends and commodity prices remain an under-appreciated swing factor for the markets. Sudden energy shocks or supply-chain disruptions could rapidly impact inflation, pressure the rupee, and squeeze corporate margins, he cautioned.
FII flows and currency risk:
Indian equities witnessed record sell-off by foreign investors in 2025. The markets, analysts said, are eagerly waiting for a reversal in FII outflows in a highly sensitive market. Any global risk-off episode or spike in US bond yields could trigger sharp market corrections, according to Mitesh Dalal.
Further, the depreciation in the Indian rupee versus the US dollar has significantly affected foreign flows. Analysts said that the rupee-dollar trajectory holds key for foreign flows as any further weakness in the domestic currency would hurt USD-denominated returns and could further accelerate capital outflows. Notably, they estimate the rupee to approach 92 per US dollar in the absence of any intervention by the Reserve Bank of India (RBI).
Interest-rate and liquidity cycle:
A narrowing interest-rate differential between Indian and the US rates, driven by a hawkish US Fed and a dovish Reserve Bank of India (RBI), could reduce the relative attractiveness of Indian bonds on a risk-adjusted basis, analysts said, which may exert additional pressure on the rupee through capital outflows.
"Further, even if rate cuts are underway, globally, markets will closely track how durable growth and inflation remain in the US and Europe," Mitesh Dalal of Sanctum Wealth pointed out.
Equity supply overhang:
Separately, analysts said a surge in initial public offerings (IPO) activity could lead to an oversupply in the primary markets and lead to lack of liquidity in the secondary markets. This may result in muted returns in CY26, believes Dalal. Continued promoter selling and private-equity exits may also add to market-wide selling pressure, he said.
Global risk sentiment and AI expectations:
Global equity markets have performed strongly in CY25, supported by substantial investments in artificial intelligence (AI) and optimism around its productivity impact. Investors, going ahead, will eye emerging AI trends and will analyse its standing. Disclaimer: View and outlook shared belong to the respective brokerages/analysts and are not endorsed by Business Standard. Readers discretion is advised.