Strong domestic fundamentals to anchor India markets in 2026: Report

The report notes that while the global economy is still not out of the woods, India outperformed major developed markets in 2025, sustaining GDP growth of 6.2-6.8 per cent compared to the world's 2.4-2.8 per cent growth.

Looking ahead, the report highlights that "various India-specific triggers are aligned in the right direction, suggesting the domestic economy should continue to shine in the global context." Policy continuity is expected to remain a key anchor, with the government's fiscal strategy likely to be anchored around a sustained reduction in the debt-to-GDP ratio and prudent management of the fiscal side of the economy. On the monetary front, the RBI's actions, including cumulative 125 bps rate cuts, liquidity injections, and macro-prudential easing, are seen as providing "a strong growth runway."

Among sectors, automobiles are expected to remain a key outperformer. The report states that the auto sector enters 2026 "on a stronger and more balanced footing," with demand supported by "easing inflation, softer interest rates and GST rationalization."

Looking ahead, the outlook remains constructive, with expectations of "mid-single-digit to high single digit volume growth," aided by direct tax rationalization lifting disposable incomes and resilient rural sentiment.

The banking sector is also positioned for steady growth, transitioning from stress to scalable growth. While 2025 was marked by elevated asset quality pressures in select unsecured segments, banks have rebalanced portfolios toward "secured Retail, Agriculture, and MSME (RAM) assets and gold-backed lending."

For 2026, the report emphasizes that "the key performance indicator to track will continue to be asset quality rather than headline credit growth," with credit costs expected to trend lower through 2026.

Capital-intensive sectors are likely to benefit from continued infrastructure spending. The cement sector, despite near-term pricing pressures, is expected to see strong growth, driven by steady demand growth, robust capacity additions, and improving profitability.

Industry estimates project all-India cement demand growth at 6-7 per cent in FY26, supported by government infrastructure spending, urban development, and housing schemes.

In metals, domestic demand is expected to offset global headwinds. The report notes that India's steel consumption grew a robust 8-9 per cent, sharply outperforming global demand growth, and steel demand is expected to "grow approx. 8 per cent" in 2026, supported by infrastructure-led capex.

Pharmaceuticals are identified as another structural growth sector. The report expects the sector to deliver 8-10 per cent revenue growth.

Overall, the report characterises 2026 as a tale of two halves, cautioning that the first half may remain volatile, while the second half offers opportunities to patient investors. It adds that one needs to be selective and thoughtful in sector rotation, with mid- and small-cap stocks expected to deliver strong returns and outperform large caps in 2026. (ANI)