In a year which saw more of a paused market attempting to make sense of developments, rather than rallies, Indian markets saw early gains followed by sideways movement at levels near previous highs, with developments in tariff-related issues, geopolitics, and international interest rates. Despite outflows continuing to be an issue for foreign investors, the resilience of the market was demonstrated. One of the key drivers for the Indian market in 2025 has been the presence of robust domestic investor support.

This phase of consolidation turned out to be helpful. Higher valuation norms settled down, with speculations curbing and the interest of investors shifting firmly to profit visibility and balance sheets. The larger stocks brought continuity to the market, although the mid and smaller-sized stocks brought about a significant correction. The profit forecasts of firms, which went through a phase of downward revisions, started stabilizing, thereby pointing at the approaching completion of this pressurized phase.

Fixed income markets experienced a transition as well. The strong investment trends exhibited by long duration strategies had essentially run their course, forcing a reevaluation of the investment landscape that presented a more select group of opportunities, prioritizing those that garnered support from increased liquidity as a means of rewarding income-oriented, short and medium-term investment approaches over aggressive duration positioning. Meanwhile, the transition of private markets from a peripheral to a more centrally invested spot within a portfolio essentially continued.

As we enter 2026, the market outlook evolves from being cautious to cautiously positive. The upcoming year is likely to witness a transition from valuation-driven investment returns to earnings growth-driven investment returns. The regulatory environment is set to remain conducive, with positive trends in inflationary pressures, besides broadening earnings participation. However, instead of a breakout, equities are seen showing directional improvement.

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Large-cap stocks are set to continue as the core investment universe, driven by solid fundamentals and growing clarity on earnings. The various market segments, after correction and consolidation, are poised to enter a cycle where select investment opportunities start to resurface, largely driven by earnings performance rather than sentiment.

The emphasis is also predicted to be upon fixed income, with the emphasis upon stability and carry, with selected maturity buckets and credit strategies providing a more favorable risk-reward profile than a long-duration position. The private markets are also destined to play an increasingly prominent part with investors aiming for a balanced approach.

On balance, 2026 market outlook appears to be turning out to be a year where progress rather than dramatics will be the key to investment success; where patience, balance, and asset allocation will form the pillars on which investment decisions would rest.