Market experts enter 2026 with cautious optimism

As the year comes to an end with around 10% returns in the benchmark Nifty 50 up from around 5.3% last year, fund managers have turned cautiously optimistic ,going by the Bank of America (BofA) Securities Asia Fund Manager Survey December 2025.

“India, after falling to the bottom of the pack in August, has slowly climbed back to mild overweight, likely serving as a diversification play against AI driven markets,” according to the December FMS in the midst of raising concerns in the sustainability of the AI stock market boom in major economies. a Japan and Taiwan however continue to stay at the top spot for the highest allocation among Asian stock.

The optimism is shared by Indian fund managers too. Indian stock markets experienced a record outflow of foreign equity investments, as they were not satisfied with the corporate earnings in the Indian listed companies. Indian market experts say that the earnings growth may have bottomed out in calendar year 2025. “Strong recovery in earnings of the market means we are more confident about decent earnings recovery in most sectors although we see downside risks to margins in the case of automobiles and consumer staples sectors,” according to a Kotak Institutional Research Strategy report. Besides Kotak, other investment research teams also place their bets on the revival of consumption stocks in the coming calendar year.

Another concern that was unanimously spoken about by both experts and investors alike is the expensive valuations of the Indian stock market. While most analysts agree with the view, HSBC Global Investment Research believes that this was not the case and that there was an undervaluation opportunity in Indian stocks. “Global factors should have led to higher returns in Indian assets, just as they supported higher returns across EM economies. However, actual returns in India turned out to be weak. From that perspective, the undervaluation that built up across assets as per our model, was driven by favourable global factors,” according to the HSBC’s research.

While major research teams and fund houses are optimistic, much of it is based on the expectation of a smooth India-US trade deal and reduction in tariffs. “We are somewhat concerned that the trade deal may fall short of market expectations, as the reported tariff rate of 15-16% seems low in comparison with ~15-20% U.S. tariff rates faced by most of the U.S.’s other key trading partners. Our economics team currently assumes US tariffs on Indian goods could be reduced to around 20% after a trade deal. This could disappoint elevated expectations,” Nomura said in its report. Moreover, a weakness in the U.S. economy can make Asian markets vulnerable , and that could hit countries where the domestic currencies are more vulnerable to foreign outflows, it added. A continued rupee depreciation may delay an FII turnaround as their dollar returns wouldn’t justify, experts felt.