Mumbai, Jan 14 (NationPress) The Indian equity markets are stepping into 2026 with a stronger foundation following a year of consolidation. Improving valuations, realistic earnings expectations, and robust domestic fundamentals are contributing to a more optimistic outlook, as revealed in a report published on Wednesday.

While global events may introduce some uncertainty, India's macroeconomic fundamentals continue to be strong, according to smallcase managers.

They believe that the upcoming year is poised to favor earnings-led investing over momentum-driven trading.

A strong consumption-driven growth cycle is anticipated in 2026, bolstered by moderate inflation, tax reductions, GST adjustments, and interest rate cuts that enhance disposable income and improve borrowing conditions, as stated in the report.

“As we transition into 2026, which is structurally more positive than 2025, valuations appear significantly more reasonable now, and earnings expectations are grounded rather than overly optimistic. India begins the year with a stable macroeconomic environment,” expressed Sonam Srivastava, smallcase Manager and Founder of Wright Research.

Returns are expected to be driven by earnings in 2026 rather than multiples, which favors disciplined stock selection and strategy-driven approaches, Srivastava added.

Sneha Jain, smallcase Manager, Founder, and CEO of WealthTrust Capital Services, mentioned that following the valuation reset in 2025, large-cap stocks, typically the premium P/B category, are currently trading below SMIDs on a price-to-book ratio. This inversion indicates lower expectations despite their stronger balance sheets, cash flows, and governance.

“This offers valuation comfort, making large caps comparatively more appealing over the next 6-8 months, although allocations should still align with overall asset strategy, with large caps acting as a stability anchor rather than a tactical overweight,” she noted.

Fiscal discipline, ongoing infrastructure investment, support for manufacturing and MSMEs, and clear guidelines on long-term capital gains taxation are more critical than short-term incentives.

Prachi Deuskar, smallcase Manager and Co-founder of Lotusdew Wealth and Investment Advisors, stated, “We expect the Union Budget to reinforce policy consistency regarding infrastructure, formalization, and fiscal responsibility, alongside initiatives to enhance household financial participation.”

We also foresee supportive measures for MSMEs, like easier access to financing, credit guarantees, and incentives to increase productivity and market access, she added.