Will India's Capital Markets Experience Steady Growth in FY26?
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Synopsis
India's capital markets are set for steady growth in FY26, backed by a strong GDP forecast and increased investor confidence. Despite global uncertainties, equities are expected to outperform other asset classes, driven by favorable valuations and a bullish outlook in key sectors like defense and real estate.
Key Takeaways
- Projected GDP growth of 6.2–6.5% for FY26.
- Nifty 50 returns expected at 12-15%.
- Foreign portfolio investors have injected over $4 billion.
- Defensive sectors like real estate and banking may benefit.
- Inflation below 4% supports policy easing.
Mumbai, May 20 (NationPress) India's capital markets are forecasted to experience consistent growth in FY26, driven by an anticipated GDP expansion of 6.2–6.5 percent and robust domestic demand, as per a recent report published on Tuesday.
The Nifty 50 index is expected to yield returns between 12-15 percent, with earnings per share (EPS) estimates hovering around Rs 1,160. Additionally, foreign portfolio investors (FPI) have regained confidence, pouring over $4 billion into the market in recent sessions, according to smallcase managers.
Despite lingering risks such as global trade tensions, US tariffs, and geopolitical uncertainties, the outlook remains optimistic, with equities predicted to outperform other asset classes in FY26 due to attractive valuations and a solid growth forecast.
“As of May 18, earnings reports from 878 companies show a 10 percent year-on-year growth for Q4 FY25,” stated Shailesh Saraf, smallcase Manager and Founder of Value Stocks.
Although FY25 recorded a modest 5.79 percent year-on-year growth, a stark contrast to the 35.1 percent surge in FY24, market sentiment has improved, reflected in FII net inflows of Rs 16,757 crore thus far in FY26, alongside an 8 percent return from the Nifty 50 and a 10 percent increase in the Smallcap 100 index, Saraf noted.
Over the last two months, the market has made a significant recovery, completely reversing its earlier year-to-date decline.
Smallcase managers assert that with inflation below 4 percent, the real interest rate has become notably positive, enhancing the case for potential policy easing.
The market appears to have already priced in a rate cut, even if it hasn't been formally announced yet. Lower borrowing rates could stimulate corporate investments and consumer spending, positively impacting sectors like banking, real estate, and automobiles. Anticipation of improved earnings and liquidity may also drive a rally in equity markets.
Robin Arya, smallcase Manager and Founder of GoalFi, mentioned, “the cautiously optimistic perspective for FY26 is grounded in several positives, including a stable government, the likelihood of reduced interest rates, and potential earnings recovery.”
“We foresee this year as one of consolidation, with enhancements in company earnings and a focus on theme-based investing,” he added.
India’s defense sector is poised for significant growth in FY26, supported by a projected capital expenditure of Rs 1.8 trillion and a $130 billion opportunity spanning FY25-29, anticipating an annual growth rate of 7-8 percent.
Point of View
I believe that the resilience shown by India's capital markets amidst global challenges demonstrates a robust economic foundation. The expected growth in FY26 presents a unique opportunity for investors, and our analysis emphasizes the importance of strategic investments in sectors poised for growth.
NationPress
13/06/2025
Frequently Asked Questions
What is the expected GDP growth for India in FY26?
The expected GDP growth for India in FY26 is projected to be between 6.2 and 6.5 percent.
What returns are anticipated from the Nifty 50?
The Nifty 50 is anticipated to yield returns of 12-15 percent in FY26.
How much investment have foreign portfolio investors made recently?
Foreign portfolio investors have injected over $4 billion into the market in recent sessions.
What are the key risks facing India's capital markets?
Key risks include global trade tensions, US tariffs, and geopolitical uncertainties.
What growth is expected in the defense sector?
The defense sector is projected to grow robustly in FY26, with a capital expenditure of Rs 1.8 trillion and a $130 billion opportunity.
