Market Outlook Shifts from Narrative to Execution in 2026

Market Outlook 2026

Key Findings:

• Markets are expected to shift towards normalised returns in 2026, following strong gains between 2020 and 2024.
• India's market remained relatively flat in dollar terms in 2025, as global markets delivered strong performance driven by artificial intelligence-led rallies.

Corporate Profit Normalisation

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• Corporate profit as a share of GDP has returned to peak levels and normalised.
• This has mirrored global interest rate trends, with higher interest rates leading to greater discipline in capital allocation.
• The market can be broadly divided into three segments:
  • Cyclical and capital-intensive businesses, which have seen profitability improve post-Covid.
  • Defensives and financials, which have also strengthened.
  • Defensive sectors, which remained steady but saw valuation expansion between 2010 and 2020.

Growth Trends Across Cycles

• Between 2010 and 2015, nominal GDP grew by around 14.5%, corporate profits by around 6%, and market capitalisation by about 12%.
• Between 2015 and 2020, GDP grew by about 10%, while corporate profits grew at around 1.1% CAGR and market capitalisation at around 2.9% CAGR.
• Between 2020 and 2024, corporate profits rebounded by about 35%, and markets delivered similar returns in line with earnings growth.
• Between 2024 and 2026, profit growth has moderated to around 7.3% while GDP continues to grow at around 9 to 10%, indicating a phase of normalisation.

Macro Stability and Capex Revival

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• The working-age population continues to provide a long-term growth runway, while improving income distribution and rising affluence support demand.
• Fiscal consolidation has strengthened the government balance sheet, while services exports and diaspora inflows continue to support external stability.
• Corporate revenues and profitability are improving, and private capital expenditure has picked up, growing at around 14% CAGR between FY19 and FY25 compared to about 5% between FY12 and FY19.
• Framework agreements on trade deals with large markets such as the $ and the EU have been concluded, which could support Indian corporates.