Mumbai: Indian equities struck a positive note early in the new year, with the Nifty 50 scaling record highs on the second trading day of 2026, amid optimism around December-quarter earnings and expectations of a pro-growth Union budget.
On Friday, Nifty 50 settled at 26,328.55, up 0.7%. Sensex ended 0.7% higher at 85,762.01, then shy of hitting its closing all-time high of 85,836.12 hit on 26 September.
Gains in HDFC Bank, ICICI Bank and Reliance Industries drove the benchmark indices higher. Financial services, oil and gas, and information technology stocks did most of the heavy lifting, with the Bank Nifty also scaling a record close of 60,150.95.
“Sector outcomes in 2026 are likely to be driven by earnings visibility rather than narratives,” pointed out Kalpen Parekh, managing director and chief executive officer, DSP Mutual Fund.
Domestic investment and manufacturing-linked segments such as capital goods, select industrials, and engineering businesses continue to offer reasonable visibility, backed by multi-year order books and public capex. Financials remain a core portfolio holding, he said.
By contrast, sectors more exposed to global growth or commodity price swings could face pressure if demand weakens or costs become volatile, Parekh said.
Market direction will now hinge on the quality and breadth of earnings growth, the flow of global liquidity into India, the pace of domestic capital expenditure, and how valuations compare, market participants said.
While concerns around valuations and foreign flows continue to Weigh on sentiment, all-time low corporate leverage, stable return on equity and steady domestic inflows have limited sharp and prolonged corrections, Parekh noted.
On capital flows, he said India’s structural appeal remains intact. Domestic savings continue to play a stabilizing role, reducing dependence on foreign flows. “While global investors may remain selective in the near term, India’s long-term relevance in global portfolios has not diminished.”
“The upcoming budget appears growth-oriented, and the GST cut’s positive impact from October-November may be reflected in December corporate results, providing a tailwind,” founder of Abakkus Asset Manager, Sunil Singhania, told. mint in an interview.
Trailing peers
In 2025, the Nifty 50 delivered a modest 12% return, trailing its Asian peers—South Korea’s Kospi surged 79%, Japan’s Nikkei 225 rose 28.6%, Hong Kong’s Hang Seng gained 32.5%, and Taiwan added 29%.
According to Aniruddha Sarkar, co-founder and chief investment officer of asset management company Equinova Investment Managers, India could be poised for a reversal of last year’s underperformance against global peers in 2026.
“From being in the bottom decile in 2025, we could see India being in the top quartile in 2026,” Sarkar said.
He attributed last year’s divergence to global capital chasing the artificial intelligence theme, which lifted valuations across several emerging markets. If that momentum cools, a correction could follow, potentially redirecting capital towards India, which is more driven by domestic consumption and capex and less exposed to the AI cycle, he said.
Another driver for Indian markets in 2026 could be the India-US trade deal. “The India-US trade deal is more of a question of ‘when’ rather than ‘if’,” Sarkar said, adding that once announced, it would strengthen market momentum.
Even if foreign investors’ participation remains tepid, “domestic flows alone are strong enough to keep the market moving higher,” he added.
Note of caution
Some market watchers, however, warn that emerging markets may be approaching a phase of correction after their recent run-up.
Over the past four months, global investors have been deploying capital into EMs in a highly correlated manner, said Elara Capital in a 19 December report. This is reflected in the sharp rise in the indicator that measures the percentage of emerging market countries experiencing simultaneous inflow momentum, which has been trending higher since May 2025.
“Historically, similar peaks in correlation – in March 2018 and October 2021, when the indicator reached the 85-90% zone – were followed by meaningful EM corrections, suggesting that the current phase warrants close monitoring,” the report said. The brokerage noted that the current reading of the indicator stands at 70%.
Bernstein, in its January 2 report also struck a cautious note. “It’s the year that promises many things: few rate cuts, a slight return of private capex, and a tentative trade deal – but we believe these “little bits of everything” do not carry enough momentum to keep the India story at heights we’ve been used to seeing.”
The foreign brokerage house has trimmed its stance on India to neutral, not because the story has turned negative, “but because it might be a bit quieter than one we’ve seen before”.
