After one of India’s weakest years in decades, some of Wall Street’s biggest names are forecasting a market rebound next year, according to Bloomberg. Morgan Stanley, Citigroup Inc., and Goldman Sachs Group Inc. expect equities to recover as corporate earnings stabilize and government policy support begins to take effect.
India’s markets have lagged peers across multiple assets. Stocks underperformed emerging market benchmarks by the widest margin in more than three decades, the rupee became Asia’s worst-performing currency, and bonds faced pressure from heavy government debt issuance. US tariffs, among the harshest in the region, also weighed on exporters’ earnings and slowed dollar inflows, intensifying the strain.
Signs of a turnaround are emerging. Growth-supportive measures, including recent rate cuts and GST rationalization, are improving sentiment, while the cycle of earnings downgrades appears to be easing. Investors are also positioning for a potential rotation away from the artificial intelligence trade, which could redirect foreign flows toward India. Angela Lan, senior strategist at State Street Investment Management, told Bloomberg that “a rebound appears increasingly likely in 2026,” noting that recent policy actions are filtering through consumption and credit.
Despite the setbacks, India’s economy has remained resilient. GDP grew 8.2 percent in the September quarter compared with a year earlier, though the International Monetary Fund lowered its projection for next financial year to 6.2 percent due to US tariffs. Corporate earnings show tentative recovery, with the top 100 firms reporting a 12 percent increase in profits in the September quarter, the first quarter in many without an estimate cut, Bloomberg reported. The benchmark NSE Nifty 50 Index briefly reached a record high on November 20, surpassing its September 2024 peak.
The rupee, which hit a record low in November and has fallen 4.3 percent this year, may be nearing a short-term floor. ING Bank NV sees it as the regional currency with the most potential for rebound. Bonds, meanwhile, have lagged the broader emerging market gains, with yields reflecting both currency weakness and expectations that the Reserve Bank of India’s rate-cut cycle may be ending. Analysts, including Sandeep Yadav of DSP Asset Managers, say further RBI bond purchases could lower yields and support market stability.
Global funds have begun returning after withdrawing more than $16 billion earlier this year. Bloomberg notes that inflows of $1.7 billion over the past two months signal that investors may gradually re-enter Indian equities, particularly if the effects of US tariffs prove temporary. With earnings stabilization, policy support, and potential foreign investment rotation, analysts see a path for India’s markets to claw back lost ground in 2026, offering cautious optimism after a challenging year.
