Expert view: Harshad Borawake, Head of Research and Fund Manager at Mirae Asset Investment Managers (India), finds the outlook for the Indian stock market in 2026 constructive, supported by improving consumption, stable macroeconomic conditions, strong domestic liquidity, and an expected easing of geopolitical gridlock. In an interview with Mint, Borawake shared his views on market trends, key risks, mid and small-cap segments, sectors that can generate alpha next year, and his expectations from the Union Budget 2026. Here are edited excerpts of the interview:
Nifty target for 2025 and outlook for 2026
The markets have been consolidating since the September 2024 highs, yet calendar year 2025 (CY25) is still expected to end on a healthy note. Strong domestic liquidity has effectively offset heavy FII selling, keeping the markets broadly flat since those highs.
For 2026, we expect a better year as policy support is now kicking in to reverse the growth slowdown. The RBI’s rate cuts and some fiscal support are expected to boost domestic demand in the second half of the year.
Also, a weaker INR (Indian rupee) should help offset some of the global headwinds.
While valuations are down 10-15% across key indices since Sep’24, they remain near the 10-year average for large caps, i.e. Nifty 50 (21.5 times 12-month forward PE), somewhat stretched for Nifty Midcap 100 (29.2 times) and expensive for Smallcap-100 (25.1 times).
For CY26, market returns should remain healthy and largely in line with earnings growth. Overall, the outlook for 2026 is constructive, supported by improving consumption, stable macro conditions, strong domestic liquidity, and an expected easing in geopolitical gridlock.
Major risks that can spoil the market’s ascent next year
Risks are more likely to emanate from exogenous sources. The AI capex, which has been supporting earnings to some extent, if it slows down, can adversely impact the growth outcomes and, in turn, impact key global markets.
In addition to delayed geopolitical resolutions and interest-rate volatility across major economies, there is a risk that the Fed will delay easing or that inflation will reaccelerate.
Domestically, lower-than-expected earnings growth and elevated valuations of mid- and small-cap companies may cap near-term upside. A slowdown in government capex or an unfavourable monsoon could further weigh on sentiment.
When can momentum be observed in the mid- and small-cap segments?
Momentum in mid- and small-caps is likely to improve as valuations cool and earnings visibility strengthens. Following a sharp rally, these segments require a period of consolidation.
As policy responses trickle in and start to bottom out the growth cycle, the small and mid-cap segments could see a meaningful turnaround. A revival should align with strong liquidity and stable global conditions.
Broader earnings upgrades across industrials, financials, and manufacturing could serve as key catalysts. In the interim, a selective, bottom-up investment approach remains the most prudent strategy.
Sectors that may generate alpha next year?
Alpha generation is likely to come from sectors aligned with India’s structural growth cycle and from identifying cyclical upturns early. We are currently overweight on consumption, automobiles, financials, healthcare and select new-age companies.
Markets over the long term reward earnings growth or cash generation over narrative. While there are multiple themes which look attractive, stock selection within these themes will matter more than broad sector positioning.
Is there value in the IT sector? What should be our strategy?
While we are still in the midst of some uncertainty in terms of sector outlook, value in IT is improving as revenue growth bottoms out and the AI-led services cycle gains visibility.
The sector generates high dividends and free cash flow yield and has demonstrated in the past its ability to manoeuvre technology transitions.
Deal pipelines in cloud, automation, and GenAI implementation are expected to strengthen in future.
A staggered accumulation strategy is prudent to manage volatility. Medium-term returns should improve as global tech spending normalises.
Key expectations from the Union Budget 2026
The Budget will likely continue on the path of stimulating consumption while also supporting manufacturing and banking/capital markets.
The government is also likely to continue its fiscal consolidation journey while maintaining a growth-supportive stance.
FY27 Union budget will likely mark a seminal departure in fiscal focus from budget deficit to debt/GDP ratio – which should open up room for spending without impacting market sentiment.
Importantly, the Budget may focus on safeguarding strategic sectors and enhancing competitiveness in industries vulnerable to tariff-led disruptions and a slowing global economy.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
