Market Poll Signals Strong Confidence in India’s Relative Equity Performance
Indian equities are expected to outperform global peers in 2026, even as foreign portfolio flows remain a key variable, according to a recent MC Markets Poll conducted by Moneycontrol. The survey, which covered 50 industry experts across mutual funds, PMS, AIFs and broking firms, reflects growing confidence in India’s domestic growth story and improving earnings visibility.
About 57 percent of respondents believe Indian equities will beat global markets next year, underscoring optimism around macro stability, consumption recovery and corporate profitability. Meanwhile, 25 percent expect global markets to outperform, and 18 percent remain undecided, highlighting that while conviction is rising, uncertainties persist.
Recent Underperformance Sets the Base for Relative Outperformance
The optimism for 2026 comes after a relatively muted year for Indian equities. In 2025, the MSCI India delivered a modest 2.2 percent total return in US dollar terms, significantly underperforming the nearly 30 percent rally in the broader MSCI Emerging Markets.
This divergence has made valuations more reasonable and raised expectations of mean reversion. Market participants believe that India’s underperformance versus Asian and emerging market peers could reverse as earnings accelerate and global risk appetite normalises.
Foreign Institutional Investors Remain a Key Swing Factor
While sentiment on performance is constructive, experts remain cautious on foreign institutional investor behaviour. Nearly 68 percent of respondents expect foreign institutional investors (FIIs) to remain net sellers in 2026, extending the trend seen over the past year.
In 2025, FIIs sold approximately ₹1.66 lakh crore worth of Indian equities. The selling was not uniform, as investors sharply reduced exposure to IT, FMCG and power stocks, while selectively adding to telecom, oil and gas, and services. This pattern suggests sector rotation driven by valuation and earnings concerns rather than a broad-based exit from India.
Supportive Global Macros Could Aid a Turn in Flows
Several respondents highlighted global monetary conditions as a potential catalyst for a recovery in FII flows. Around 63 percent of experts expect the US Federal Reserve to cut interest rates twice in 2026, while 33 percent foresee at least one rate cut.
Vikas Gupta, Founder and Chief Investment Strategist at Omniscience Capital, said the global search for returns could intensify. “Among trillion-dollar-plus economies, India stands out with high real GDP growth, nearly 500 listed companies with market capitalisation above $500 million, and deep domestic liquidity,” he noted.
Rupee Stability Seen Limiting Currency Risk for Investors
Currency expectations also appear supportive. Around 57 percent of respondents project the rupee to depreciate by only 0–3 percent in 2026, while another 35 percent see a moderate decline of 3–4 percent. Such controlled depreciation could reduce currency risk for foreign investors and support India’s relative appeal.
Sunny Agrawal of SBI Securities said, “USD-INR has stabilised after hitting recent lows near 91. However, delays in the India–US trade deal or rising geopolitical tensions could cause temporary pressure.”
Earnings Growth Emerges as the Core Market Driver
Improving corporate earnings is seen as the most important trigger for a potential reversal in FII flows. Agrawal believes double-digit earnings growth, combined with more comfortable valuations after nearly 15 months of consolidation, could draw investors back.
A recent note from Jefferies projects MSCI India EPS growth accelerating from 8–9 percent in FY25/26 to 13–14 percent in FY26/27, led by banks, autos and power companies.
Crucially, strong domestic inflows continue to cushion the market:
-
Monthly inflows of $7–$8 billion from mutual funds and SIPs
-
Steady participation from insurers, provident funds and AIFs
-
Rising direct retail equity investments
These flows provide a buffer against net foreign selling and add resilience to Indian equities.
Valuations Look More Reasonable on Normalised Earnings
Although headline valuation multiples still appear elevated, experts argue that a normalised earnings lens paints a different picture. Gupta noted that earnings growth likely bottomed out in FY26, making current valuations reasonable for long-term investors.
He added that the Reserve Bank of India could deliver rate cuts amid low inflation and high real interest rates, while government policies remain supportive of growth, exports and foreign direct investment.
AI Trade, India–US Deal Could Shift Global Capital Flows
Global thematic shifts could also play a role. Shreyash Devalkar, Head of Equity at Axis Mutual Fund, pointed out that the AI-led rally has disproportionately benefited US markets, leaving India relatively under-owned.
“Even a partial unwinding of the AI trade could redirect flows toward markets like India that underperformed,” he said. Agrawal added that a potential India–US tariff deal over the next few months could further boost sentiment.
Impact on Traders and Investor Portfolios Going Forward
For traders, 2026 may bring selective opportunities rather than broad-based rallies. Sector rotation, earnings upgrades and macro triggers will likely drive volatility.
For long-term investors, the poll suggests:
-
Maintaining exposure to India-focused equity portfolios
-
Focusing on earnings-led sectors like banks, autos and power
-
Using volatility from FII flows as an opportunity rather than a risk
As Gupta summed up, “The probability of FII flows reverting is rising as the global rate cycle turns.”
Constructive Outlook for 2026 with Risks Still in Focus
Overall, the experts remain constructive on Indian equities in 2026, betting on domestic growth, improving earnings and strong local liquidity to drive relative outperformance. While foreign inflows may remain uneven, the underlying fundamentals position India as one of the most resilient large emerging markets in the coming year.
