Aditya Birla Sun Life AMC Ltd. Presents “Annual Market Outlook 2026”: Lack of valuation rerating and INR depreciation has contributed to India’s underperformance relative to global equities
FinTech BizNews Service
Mumbai, 7 January 2026: Aditya Birla Sun Life AMC Ltd. Has come out with interesting research report titled “Annual Market Outlook 2026.”
Why India Looks Ready To Reclaim After The Reset
The year 2025 can be best characterized as an eventful and challenging year with the headline
indices returning double-digit returns and extending their winning streak to 10 years in a row. This
was on the back of many initiatives and events that continued to dominate headlines ranging from
interest rate cut, tax rate cut, sovereign rating upgrade for India, accelerated rupee depreciation,
all-time high SIP inflow among others. With such a steady flow of positive headlines, the
expectation was for India’s financial markets to comfortably tide over the hurdles in 2025. But
reality was starkly different. We grappled with weak earnings growth, compression in the
valuation picture along with an uncertain global backdrop. The investor experience turned out to
be uneven with small & midcap returns being lower than the frontline index. With this background
of how 2025 turned out to be, the key question to ask would be – How will markets react in 2026?
The answer to that can best be described by three words – Reboot, Refresh, Reclaim!
Reboot: due to geopolitical uncertainty
The global sentiment for 2025 was dominated by geopolitical uncertainty, trade friction and tariff
concerns among other things. Amidst all this, the rupee witnessed accelerated depreciation
which turned out to be in India’s favor as it maintained the export competitiveness and provided
macro stability. From a money flow point of view, foreign investors turned cautious with their
positioning also at record low levels. As a result, India underperformed not only developed
markets but also emerging peers despite being the fastest growing economy in the world. India’s
relative performance versus Emerging Markets is at a historical low. Lack of valuation rerating and INR depreciation has contributed to India’s underperformance relative to global equities.
This reboot has cleared excesses as the valuation froth has moderated, equity supply has eased,
foreign investor positioning is light, and currency competitiveness has improved.
Refresh: focus on domestic consumption, rupee depreciation & monetary stimulus
The government and central bank have ensured the fiscal and monetary policy actions of last year
have laid a solid foundation for future growth. This includes a 125-bps rate cut, liquidity infusion,
tax rate cut along with GST rationalization. Thanks to these, we can expect a pickup in urban
consumption in 2026 along with benign inflation. This refresh will pave the way for the much-
awaited pickup in domestic consumption. This will also aide in expected earnings revival of Indian
corporates in the new year. Nifty earnings are expected to grow in the range of low-to-mid teens
over the next couple of years. Not just equity, but debt too would benefit from this refresh with
transmission of rates and an expected 25-bps rate cut by the RBI in the coming months.
Reclaim: better times ahead with improved earnings outlook in new sectors/themes
This phase is expected to extend beyond 2026 with India reclaiming its earnings momentum,
global relevance and its long-term equity story. As earnings start catching up in 2026, the gap
between profit growth and market capitalization growth could propel markets higher. We believe
the indiscriminate small & midcap outperformance phase is behind us while large caps are better
positioned in this phase.
From an asset allocation point of view, domestic equities remain attractive relative to other asset
classes while fixed income would likely offer stability as the rate cycle turns positive. Overall,
2026 is not expected to be a straight line as geopolitics, trade concerns and currency movement
continue to persist as real risks. After the reboot and refresh, investors can look forward to
reclaiming earnings-led returns.
