India’s fundamental growth story — powered by resilient domestic demand, structural reforms, and demographic tailwinds — continues to underpin investor confidence. The outlook for January 2026 and beyond remains positive but nuanced, broadly driven by the factors below:
- Sustained economic growth (GDP expansion).
- Stable yet evolving monetary policy from RBI.
- Equity market valuations and sector rotation.
- Inflation dynamics.
- External/global headwinds.
Multiple global institutions project India to continue being one of the fastest-growing major economies in 2026:
- Asian Development Bank sees growth moderating around ~6.7% in 2026.
- RBI and rating agencies paint a similar trend with growth around the 6.2%–6.5% range for FY2026.
- IMF forecasts India’s growth slightly lower but still robust relative to peers.
- World Bank has revised India’s FY26 GDP forecast upward to ~6.5%.
Whilst India’s GDP is not expected to sprint as it did post-pandemic, growth remains solid and above global averages, supporting corporate earnings and market stability. Retail inflation remains relatively contained, even amid food price upticks.
The Reserve Bank of India (RBI) has consistently cut policy rates in 2025 to support growth, with repo rates easing to stimulate liquidity ensuring moderate inflation and steady growth. Stable inflation allows monetary policy flexibility, which can continue to support equity markets. However, inflation volatility due to food or energy prices remains a point to watch-out for.
The Indian Rupee has been under pressure (trading above ₹90 to the USD), influenced by global dollar strength and capital flows. Bond yields on the 10-year government securities have edged up, reflecting concerns over debt supply and investor caution. INR weakness can affect corporate earnings (especially in import-heavy sectors) and foreign investor sentiment, impacting equities and debt markets.
The Nifty 50 shows steady gains with momentum above key technical supports. Dips that can be seen as buying opportunities as long as factors remain favourable. Some of the key factors that have been driving the markets forward include:
- A higher credit demand and lower stress ratios within the Banking and Financial sector
- Strong global digital demand led by factors other than AI.
- Domestic demand driving consumption and in turn earnings, thereby reflecting a robust self-reliant economy
- Strong support from policy led reforms, infusion of liquidity and increased capex levels.
Valuations remain above long-term averages, whilst not excessively stretched compared to other emerging markets. Strong earnings growth projections support current price levels, as long as the earnings levels remain sustainable over the medium to long term.
The chart below indicates P/E ratios rising modestly, indicating slightly richer valuations with reasonable earnings growth expectations. Having said that we caution investors against bubbles in specific segments of the markets.
Trailing 12-month P/E moving average.
| Month | P/E |
| Jan 2025 | 18.5 |
| Jul 2025 | 19.2 |
| Dec 2025 | 20.0 |
| Jan 2026 | 20.3 |
Precious metals like gold and silver have been rising due to safe-haven demand, often correlated with geopolitical concerns and currency weakness. The chart below outlines the process of Gold and Silver over the past 5 years.
Gold often acts as a hedge during risk-off periods, and may continue to attract investment in volatile months.
While energy price shocks remain a risk factor. The weakening of the crude oil prices remain beneficial, positively impacting India’s import bill and inflation. A weakening currency may also place additional pressure on inflation.
Overall, we think that India’s large consumer base remains a long-term engine of growth. Sectors such as FMCG, auto, and retail are likely to continue attracting investment. Rising credit offtake and stable asset quality support bank earnings. NBFCs also benefit from credit expansion. Capex spending by the government and urbanisation play a key role thus ensuring a resilience amid global uncertainty.
We suggest a balanced approach to investing, seeking opportunities in sectors tied to domestic demand and consumption, banks and financials, and technology, while managing risks through diversification and tactical hedging.
