Earnings revival to boost Indian equities in CY26; SBI, Infy top MOFSL bets

Indian equities are well-placed to reclaim lost ground in calendar year 2026 (CY26), backed  by improving earnings prospects, resilient domestic macro conditions and a more stable geopolitical environment, according to Motilal Oswal’s India Valuations Handbook. With valuations close to long-period averages, the brokerage believes any pickup in earnings growth could drive a rerating of the market.

 

Motilal Oswal said the Nifty is trading at a 12-month forward P/E of 21.2x, near its long-period average of 20.8x, suggesting valuations are reasonable. “Concerns around lower nominal GDP materially impacting corporate profit growth appear overblown,” the brokerage noted, adding that corporate earnings are driven by multiple factors beyond headline economic growth.

 

 

Reflecting this outlook, Motilal Oswal has raised Indian IT services to mildly overweight in its model portfolio, funded by trimming exposure to consumer discretionary and healthcare stocks. Its preferred sectors for CY26 are diversified financials, IT services, automobiles, telecom and capital goods, while energy, metals and utilities remain key underweights.

 

Among largecaps, Motilal Oswal’s top ideas include Bharti Airtel, ICICI Bank, SBI, L&T, Mahindra & Mahindra, Infosys, Titan Company, Bharat Electronics, InterGlobe Aviation, Tata Steel, TVS Motor, Tech Mahindra, Max Healthcare and Indian Hotels. In the midcap and smallcap space, the brokerage prefers Swiggy, Dixon Technologies, Suzlon Energy, Jindal Stainless, Coforge, Angel One, Radico Khaitan, Delhivery, V-Mart Retail and VIP Industries.

CY25 in review: 10th straight year of gains

The constructive outlook for CY26 follows another positive year for Indian equities. The Nifty ended CY25 up 10.5 per cent, marking the tenth consecutive calendar year of gains. The index touched a fresh lifetime high of 26,326 during the year before closing CY25 at 26,130.

 

December, however, proved volatile and ended the Nifty’s three-month winning streak. The index slipped 0.3 per cent month-on-month, after swinging in a wide 633-point range during the month.  ALSO READ | Equity vs gold vs silver: How investors should balance portfolios for 2026

Market performance: Leadership narrows

 

Performance across market segments diverged in CY25. Over the last 12 months, largecaps rose 11 per cent, while midcaps gained 6 per cent and smallcaps declined 6 per cent, reflecting valuation corrections in the broader market. Over a five-year period, however, midcaps and smallcaps continued to considerably outperform largecaps, with CAGRs of 23.7 per cent and 20.1 per cent, respectively.

 

Sectorally, PSU banks (+30 per cent), metals (+29 per cent), financials (+27 per cent), automobiles (+23 per cent) and private banks (+16 per cent) led the gains. At the stock level, Shriram Finance, Maruti Suzuki, Eicher Motors, Hindalco and SBI Life Insurance were the top performers, while Trent, TCS, Tata Motors (PV), HCL Tech and Power Grid were among the key laggards.

Domestic flows dominate, FIIs retreat

Motilal Oswal highlighted the growing role of domestic investors in CY25. DII equity inflows hit a record $90.1 billion, sharply higher than $62.9 billion in CY24. Over the last decade, DIIs have cumulatively invested $255.8 billion, with only one year of net outflows since CY15.

 

In contrast, foreign institutional investors recorded their highest-ever equity outflows of $18.8 billion in CY25. Despite this, the market remained resilient, underscoring the structural shift in market ownership towards domestic capital.  ALSO READ | Airtel, L&T, Varun Beverages among 5 largecap stock ideas for 2026: Experts

Global comparison and valuations

India underperformed several global peers in December, alongside the US, even as markets such as Korea, Taiwan and Germany posted gains. Over the last 12 months in USD terms, the MSCI India Index rose 3 per cent, lagging the MSCI Emerging Markets Index’s 31 per cent gain. Over a 10-year period, however, MSCI India has outperformed MSCI EM by 53 per cent, Motilal Oswal noted.

 

On valuations, around two-thirds of sectors trade at a premium to their long-term averages. Capital goods, PSU banks, NBFCs, oil & gas, metals and utilities trade above historical norms, while private banks and retail trade at a discount. The market capitalisation-to-GDP ratio stands at 133 per cent of FY26E GDP, well above its long-term average.

 

With valuations near historical norms and earnings growth expected to improve, Motilal Oswal believes Indian equities are set for an earnings-led rebound in CY26, with selective sector positioning and stock picking likely to drive returns.

 

Disclaimer: The views or investment tips expressed by the brokerage in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions