Market outlook 2026: Templeton Global Investments stays cautiously optimistic; here's why

Templeton Global Investments (TGI) in its "India outlook 2026: Earnings recovery, policy tailwinds and a resilient growth story" note said it remained cautiously optimistic on Indian equities after a volatile 2025, citing improving valuations, easing external risks and the prospect of an earnings recovery in 2026. The global investment firm said supportive fiscal and monetary policies continued to underpin resilient domestic consumption, adding the longer-term fundamentals and structural themes for Indian equity investing remained intact.

TGI said Indian equities underperformed global peers in 2025, which pushed valuations to less demanding levels. Between January and November 2025, the MSCI India rose 4.8 per cent, compared with a 30.4 per cent gain in the MSCI Emerging Markets Index and a 21.6 per cent rise in the MSCI ACWI. 

"The price-to-earnings premium of Indian equities has shrunk sizably in tandem, and their valuations now appear more compelling, particularly relative to certain red-hot emerging market," TGI said.

TGI said forward earnings estimates were repeatedly downgraded in 2025 amid global trade disruptions and geopolitical headwinds. Current projections pointed to around 10 per cent earnings per share growth for FY26, down from about 12 per cent in the previous year. However, the TGI said it expects earnings growth to recover to mid-teen levels in calendar 2026, with early signs of stabilisation visible in the July–September 2025 results season and improving one-year roll-forward earnings estimates since September 2025.

Templeton Global Investments said earnings growth is likely to be led by domestic-facing and consumption-oriented sectors such as consumer staples, discretionary and automobiles in the second half of the current financial year. Entering FY27, earnings growth is expected to broaden across both domestic and export-oriented sectors.

TGI said Indian companies are likely to sustain Ebitda margins of about 20–22 per cent over the current and next financial years, with limited scope for improvement at an aggregate level. Select sectors, however, could see stronger margin expansion, it said. The fund house cited cement companies, where cost reduction initiatives, pricing recovery from a low base and demand improvement could support robust earnings growth in the next financial year.

Templeton Global Investments said a series of fiscal measures rolled out in 2025, including income tax concessions aimed at the middle class and goods and services tax rationalisation, were expected to support demand. It added that the Reserve Bank of India’s cumulative 125 basis point policy rate cuts in 2025, alongside liquidity measures and regulatory easing, should deliver their full impact in 2026, supporting consumer spending and a recovery in private sector capital expenditure.

On the external front, TGI said India–US trade relations showed signs of improvement. It noted that progress in negotiations for a framework trade agreement could reduce US tariffs from about 50 per cent to around 15–25 per cent, potentially removing a key overhang for India’s outlook if concluded in early 2026.

TGI said it continued to favour consumption, health care and banking as high-conviction themes. On consumption, the fund house said favourable demographics and a rising middle class were expected to sustain discretionary spending and premiumisation trends. It said sectors such as hotels and leisure could benefit from demand outpacing supply, while a recovery in travel and wedding-related activity was likely to support revenue growth in 2026. In health care, TGI said rising incomes and sustained consumption growth were expected to support hospital expansion, with capacity growth projected at around 40 per cent across the top 12 listed hospital operators. It added that pharmaceutical revenues were likely to rise over the next three years, driven largely by GLP-1-related launches.

On banks, TGI said rate cuts, liquidity infusion and regulatory easing were expected to create favourable conditions for consumer and corporate credit growth in 2026. It added that banks were likely to see gradual improvement in net interest margins as funding costs declined in the coming quarters.