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Reflation in the Indian economy, a possible revival in corporate earnings, and the return of foreign portfolio investors are among the positive signs that Indian equities will push higher year-on-year through the New Year - 2026, according to a report by Standard Chartered.
The report 'Outlook 2026: Ride the Recovery Wave' noted that they remain "constructive" on Indian equities in 2026 and expect markets to push higher through the year. At the macro level, a reflating economy, with a nominal GDP growth rate expected to move into double digits amid broad-based growth and normalisation of inflation, is supportive of the corporate revenue outlook, it noted. Consensus expects Nifty Index EPS CAGR to rise to 16 per cent for 2025-26-28, compared to 5 per cent for 2023-24-26 as the year-long earnings downgrade cycle bottoms out, the report noted. "A reflating economy, easing financial conditions, an uptick in consumption demand amid GST cuts and strong rural demand coupled with bank deregulations are likely to drive the corporate profit cycle in the coming year," the report added. Inflation in India has begun to show early signs of reflation after remaining at a record low over the past months. Reflation measures include tax cuts, increased spending, and lower interest rates to boost demand, production, and jobs. The goal is to counter deflationary pressures and restore growth, as seen in initiatives like Atma Nirbhar Bharat and recent rate cuts. After significant outflows this year, foreign investor positioning is close to multi-decade lows. A turnaround in growth and earnings is likely to result in a return of foreign investor inflows, it noted. On the domestic front, liquidity remains supportive, it noted. "On the domestic front, liquidity remains supportive amid (i) cyclical drivers - as relative valuations point to the attractiveness of equities vs bond, leading to greater allocation to equities in hybrid strategies and (ii) structural drivers - still low household allocation towards equity and financialisation of savings," it supplemented. Against that backdrop, Standard Chartered is overweight on Large-cap Equities. "These (Large-cap Equities) offer a greater margin of safety for both valuations and earnings, compared to Mid- and Small-cap Equities. Further, Large-cap Equities are the first beneficiaries of a resumption of foreign investor inflows and higher equity allocation in hybrid strategies," the report read. They are also overweight on Midcap Equities, citing strong earnings and reasonable valuations. (ANI)
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