New Delhi, Dec 30 (NationPress) The Indian equity markets are anticipated to be on stronger ground in 2026, bolstered by robust domestic demand driven by the macro environment, reduced inflation, favorable post-monsoon harvests, and the wealth impact of gold, according to a report released on Tuesday.

The analysis from Bajaj Finserv Asset Management Limited highlighted that corporate earnings are projected to improve thanks to government tax initiatives and the RBI's monetary policy easing, indicating a broad-based cyclical recovery.

The firm predicts that sectoral leadership will primarily stem from domestic cyclicals and consumption, and that exports may gain traction as uncertainties surrounding tariffs diminish and the rupee stabilizes.

The year 2025 was characterized by increased volatility due to fluctuating trade tariffs, geopolitical tensions, and ongoing foreign institutional investor outflows. Nevertheless, the markets demonstrated resilience, supported by solid domestic fundamentals and a shift in investor sentiment, the report noted.

Large-cap stocks offered relative stability, while mid-caps yielded around 5 percent. In contrast, small-caps saw a decline of approximately 8 percent, reflecting a preference for quality as investors prioritized balance sheet strength and earnings visibility.

Sectoral leadership fluctuated every two to three months following the correction in September 2024, with the auto and consumption sectors (21.7 percent) alternating in prominence, aided by tax reductions and festive demand.

Export sectors lagged behind due to tariff-related uncertainties, despite the depreciation of the rupee negatively impacting IT services, which fell by 13.7 percent.

The Nifty 50 recorded a return of about 9 percent in 2025, while volatility was a significant factor in market sentiment, with the India VIX surpassing the 20-mark six times from January to May. It peaked at 22.79 in April, before averaging around 13.5 in the latter half of the year, according to the report.

Additionally, a recent report by Standard Chartered indicated that reflation in the Indian economy, a potential recovery in corporate earnings, and the return of foreign portfolio investors are positive indicators suggesting that Indian equities will rise year-on-year through 2026.