UBS sees Nifty at 26,000, shares 4 reasons for stock market optimism

UBS on Tuesday maintained its positive stance on the Indian stock market and set a 12-month target of 26,000 for Nifty. The foreign brokerage, however, sees prospects of 6 per cent downside on the 50-pack index -- in case of a global growth slowdown. 

UBS sees a consumption-led recovery in FY26 and FY27 after weak consumption and capex cycles in FY25. It noted that lower oil prices would aid GDP growth and help ease inflation. Besides, the investment firm sees India better placed than its Asian peers to weather US tariffs impact and a global growth slowdown. Lastly, it finds valuations reasonable with the market's one-year forward PE multiple at past 7-8 year average. 

In case of global growth slowdown, Nifty may see a 6 per cent downside as consensus earnings growth of 13 per cent for FY26 could slip to 8 per cent, UBS said noting that 20 per cent of Nifty's earnings are linked to global growth. 

Its Economics team has cut FY26 India GDP by 30 basis points to 6 per cent and FY27 GDP by 20 bps to 6.4 per cent to factor potential global growth slowdown. The offsetting factors are lower crude and benefit of consumption stimulus, UBS said.

"Bottom-up analysis suggests 8 per cent upside in the Nifty to a one year target of 26,000. Financials, staples, retail, 2Ws, cement and travel should outperform. In case of global growth slowdown, Nifty Index could have 6 per cent downside as consensus earnings growth of 13 per cent for FY26 could reduce to 8 per cent," UBS said.

The foreign brokerage is positive on most consumption-oriented sectors spanning retail, staples, two-wheelers (2Ws) and travel. It is also positive on financials, real estate, cement and hospitals. 

The brokerage is less sanguine on industrials and infrastructure, as government capex growth should be low at mid-to-high single-digit CAGR over FY25-27 as eighth pay commission payouts strain fiscal space. It noted that the combined fiscal deficit of the state governments is close to 3 per cent and ongoing social welfare spending has placed further capex constraints. 

Besides, some private capex could be impacted given uncertainty over global growth. "We highlight the UBS Industrials team is constructive on defence and the power equipment value chain. We are cautious on the IT sector due to potential earning risk given high  exposure to the US and concerns on global growth slowdown. We highlight the UBS IT team is positive on its coverage as in the team's view, downside to current valuations is limited. We are cautious on generic pharma export names and expect earnings downgrades starting in 2HFY26," it said.