Mumbai, Jan 8 (NationPress) Indian equities are poised to recover from their global underperformance as they step into 2026, bolstered by strong macroeconomic fundamentals. The growth rate of GDP remains robust while inflation is effectively managed, according to a report released on Thursday.

Despite lagging behind global counterparts in 2025, Indian equities are entering 2026 with significant domestic support. The benchmark indices recorded modest gains last year — with Nifty increasing by 11 percent, Nifty Midcap by 6 percent, and Nifty500 by 7 percent — but fell short compared to global markets, largely due to rising geopolitical tensions and ongoing foreign investor withdrawals, as highlighted by Motilal Oswal Financial Services Ltd (MOFSL).

In 2025, foreign institutional investors (FIIs) withdrew nearly $19 billion, primarily influenced by unfavorable US trade policies, although domestic institutional investors (DIIs) played a crucial role in balancing this out.

The report indicates that various policy measures implemented by the Reserve Bank of India and the government — such as cumulative rate reductions, liquidity enhancements, GST 2.0 cuts, and personal tax relief — are anticipated to yield positive growth effects starting in 2026.

In this context, the India-US bilateral trade agreement (BTA) emerges as a critical factor that could rejuvenate FII engagement and catalyze a market re-evaluation.

Expectations for Q3 FY26 earnings are high, with forecasts indicating the strongest performance in eight quarters, where the MOFSL universe is expected to achieve a remarkable 16 percent year-on-year PAT growth.

Even when excluding oil marketing firms, earnings growth is predicted to be a healthy 13 percent YoY, despite a slowdown in the Banking and Technology sectors.

Broad-based earnings recovery is on the horizon, with 20 sectors projected to showcase double-digit growth, marking the end of the earnings downcycle that began in FY25. Discretionary consumption has experienced a notable rebound, supported by GST 2.0 reductions, festive demand, lower interest rates, and increased disposable incomes, according to the report.

Domestic investments remain a strong pillar for market stability, with DIIs pouring in approximately $90 billion in 2025, aided by consistent SIP inflows, which helped absorb FII sell-offs and robust primary market issuances.

The report concludes, “With domestic growth catalysts firmly established and earnings momentum gaining strength, India embarks on CY26 with a significantly improved outlook.”