"Calm skies are not an excuse for careless sails.” This adage sums up market watchers’ sentiment as domestic benchmarks greet the New Year with near-record highs and stock investors grapple with bigger questions. The resilience of headline indices Nifty and Sensex hid the bruising the broader market received in 2025, raising questions over whether the Indian market can position itself as Asia’s ‘anti-AI bet’ in 2026, whether foreign flows will return on India-US trade deal, and whether domestic investors will keep calm and stay committed despite a painful year for the broader market. As the father of value investing, Benjamin Graham, once put it, the market is a voting machine in the short term, but a weighing machine in the long term. Eventually, earnings have to catch up to valuations. And all this was elusive all through this year. The IPO Spree The year 2025 saw as many as 364 companies coming out with IPOs till December 19—a rate of one per day, raising about Rs 1.9 lakh crore. This even as promoters, private equity, and venture capitalists offloaded over Rs 2 lakh crore worth of shares via block deals. The much-cared-about foreign outflows stood at Rs 1.5 lakh crore. Most of this supply was quietly absorbed by over Rs 7 lakh crore put in by domestic institutional investors, preventing deeper damage to the frontline indices. Stock portfolios still bled, as a total of 2,566 out of 3,900-odd actively traded listed stocks fell by more than 10%. Fund managers and stock analysts, however, see a silver lining. The Street expects Nifty EPS in FY27 at approximately Rs 1,280, implying a 20 times FY27 estimated earnings multiple, according to Dhiraj Relli, MD & CEO at HDFC Securities. “Indian markets, particularly amid improving corporate earnings growth, low interest rates, ample liquidity, and a macroeconomic recovery, have the potential to outperform other markets in 2026,” he says. Reality Check Against a 8-9% rise for Nifty and Sensex, the market value of all-listed stocks on Indian bourses stood at nearly Rs 474 lakh crore on December 27, rising 6% since the last year. Smallcaps were the worst-hit. Stock returns are typically driven by two engines: earnings growth and valuation re-rating. In a year when the AI theme drove a global rally, US slapped India with 50% tariffs; and its valuations were deemed expensive, as earnings growth was nothing to talk home about. The weakness of the rupee too weighed. MSCI EM index, which represents 24 emerging markets, gained nearly 33% against MSCI India’s modest 2.29% return. This was the worst relative performance for India in three decades. It reflected the reality of a cyclical deceleration in earnings growth and rupee depreciation against the dollar, says Jefferies. In a sideways market, fundamentals regained their voice, says Umeshkumar Mehta, CIO at SAMCO Mutual Fund, who sees bottom-up stock investing opportunities ahead. Fresh Issues As many as 103 mainboard IPOs raised Rs 1,75,451 crore, while 261 SME offerings mobilised another Rs 11,100 crore in 2025 (till December 19). In addition, 31 offers for sale (through stock exchange mechanism route) garnered Rs 18,291 crore. Promoters pared stakes worth Rs 1,33,330 crore in 349 bulk and block deals, while private equity and venture capital investors exited equities worth Rs 76,078 crore through 405 deals, reveals data from PRIME Database Group. Pranav Haldea, MD, PRIME DatabaseIn 2026, several big-ticket IPOs, from Reliance Jio and NSE, to Flipkart, are expected. Pranav Haldea, MD at PRIME Database, says the IPO pipeline remains crowded, with about 200 companies either securing Sebi approval or awaiting a nod, a count that does not include the mega Jio Platforms’ IPO, whose draft papers are yet to be filed. Haldea expects the flow of equity supply through Offers For Sale (OFS) and block deals to remain unabated and adds that Q2 earnings recovery, coupled with a year-long time correction, has brought valuations to more reasonable levels compared to last year. Overlaying this is the prospect of an ‘anti-AI trade’ which, if it plays out, could revive foreign inflows and ease the pressure on domestic funds to support the market. An “anti-AI bet” is an investment strategy or market theme focusing on sectors and companies expected to perform well if AI adoption slows, faces regulation, or if the hype fades. Hope Abounds Valuations now appear reasonable, suggesting market returns will largely mirror earnings growth rather than re-rating, believes Neelesh Surana, Chief Investment Officer, Mirae Asset Investment Managers (India). Neelesh Surana, CIO, Mirae Asset Investment Managers (India)Shridatta Bhandwaldar, CIO for Equities at Canara Robeco Asset Management Company, is also hopeful. He sees resolution of Indo-US tariff challenges, improving exports and foreign flows outlook, and a corporate earnings revival cyclically driven by a few factors as driving factors. Bhandwaldar, on the other hand, says government consumption push through GST and personal income tax cuts, improving credit growth, interest rate cuts and surplus liquidity in the system, improving rural real wage growth, healthy corporate and bank balance sheets and favourable earnings base effect for 2026 are all positives. With improvement in credit growth, led by satisfactory rate transmission and stronger private capex cycle, the conversion to corporate earnings should be faster, say analysts who cited rate cuts and Rs 1.45 lakh crore RBI liquidity support. Utsav Verma of Choice Institutional Equities notes that credit growth has been improving and was up 11.5% YoY as of November 28. Corporate earnings showed early contours of an upswing with 12.8% growth in net income for Nifty 500 in Q2FY26. While the bottom line improved, the top line still is a concern. Overall poor demand led to weak corporate revenue growth, with Nifty500 average revenue growth for Q2FY26 at 6.3%, 240 basis points slower than the nominal GDP growth of 8.7%. High valuations in secondary market and subdued earnings growth drove investors toward the primary market, according to Vinod Nair, Head of Research at Geojit Investments. He expects this momentum to continue in 2026, and maintains a constructive view on the secondary market, supported by expectations of easing geopolitical risks and narrowing tariff gaps. What Lies Ahead Brokerages are optimistic. Levels of 29,500 for the Nifty and 98,500 for the Sensex—that’s the target set by ICICI Direct. Nomura sees Nifty at 29,300, while Emkay Global expects the 50-stock index at 29,000, in 2026. Nair says the market upside is expected to be earnings-led rather than valuation-driven, with large caps providing growth and midcaps bringing back stability. He has raised his Nifty50 base target for December 2026 to 29,150—a 12% YoY return. His 2026 strategy favours a multi-cap portfolio, with 60% to large caps, 15% to mid-caps, and 10% to small caps. “We recommend reducing exposure to gold and silver to 5% and maintaining debt at 10%,” Nair says. Financial services firm Nomura recommends a selective bottom-up approach. “We suggest that investors avoid narrative-driven richly valued stocks, consider increasing exposure to underperforming exporters, and be selective on segments with government intervention.” Axis Securities likes financials, as they would be beneficiaries of credit expansion and the interest rate cycle. It advises investors playing a domestic growth story through companies benefiting from consumption. While markets wrapped 2025 with a mix of highs and lows, investors will try to find the silver lining in 2026. For now, even as experts show signs of optimism, it is safe to err on the side of caution. @amit_mudgill
