Motilal Oswal Forecasts Favorable Base for FY27 Following FY26 Market Disruptions

Markets Expect Stronger FY27 After Turbulent FY26

A turbulent fiscal year 2026 (FY26) could set the stage for a stronger fiscal year 2027 (FY27) for Indian equities, according to a strategy report by Motilal Oswal Financial Services. The report describes FY26 as a "near black swan" marked by extreme global disruptions and rare underperformance.

Indian equities were among the worst-performing major markets in FY26, falling about 14% in dollar terms. This underperformance was in stark contrast to the gains of 27% in emerging markets and 16% for the S&P 500, despite improving earnings trends.

The report notes that global factors dominated sentiment through the year, with a series of geopolitical and economic shocks, including US tariff actions and the Iran-Israel/US conflict. These shocks kept volatility elevated and overshadowed domestic positives.

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India's underperformance was attributed to stronger growth visibility and more attractive valuations in other emerging markets, as well as gains in countries such as South Korea and Taiwan linked to global technology trends, and commodity-led strength in Brazil and South Africa. The depreciation of the rupee by around 8% further weighed on returns in dollar terms, widening the gap with peers.

Domestic institutional investors remained the main support for the market, investing about $96 billion during the year, even as foreign institutional investors pulled out around $20 billion. However, the report notes that markets reacted more sharply to foreign outflows than in previous years despite strong domestic buying.

On the policy front, both the government and the Reserve Bank of India stepped up support. The RBI cut rates by a cumulative 100 basis points during 2025, alongside liquidity measures, while the government announced income tax relief, simplified the GST structure, and pushed forward trade agreements with key global partners.

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While these measures have yet to fully reflect in market performance, the report said their impact could play out with a lag. It expects earnings to grow at around 16% annually over FY26–28, with double-digit growth still likely despite global uncertainties.

Valuations have also corrected, with the Nifty trading at about 17.7 times earnings, a roughly 15% discount to its long-period average. India's premium to emerging markets has narrowed to about 27%, sharply lower than its historical average of 73%.

Motilal Oswal's preferred large-cap picks include Bharti Airtel, State Bank of India, ICICI Bank, Titan, Mahindra & Mahindra, Infosys, and Tata Steel. Among broader market ideas, it highlighted TVS Motor, Indian Hotels, Dixon Technologies, and Delhivery.