India's 2026 outlook improves on reforms, US ties: Invesco report

Invesco's 2026 outlook for India is cautiously optimistic, citing ongoing reforms and improved US-India relations. The report expects India to remain the world's fastest-growing large economy, though its stocks may underperform.

India's outlook for 2026 improved amid geopolitical challenges due to ongoing reforms and optimism in the US-India relations, said a report by Invesco Strategy & Insights. In its "2026 Annual Investment Outlook Resilience and rebalancing", Invesco mentioned that despite equity market underperformance amid geopolitical tensions, we are cautiously optimistic on India in 2026, due to ongoing reforms and signs of stabilization and room for potential improvement in US-India relations.

India's Economic Growth Projections

"We expect India to remain the world's fastest growing large economy, with growth modestly accelerating on Reserve Bank of India (RBI) rate cuts. Domestic economic reforms remain crucial for raising trend growth and for long-term resilience, in our view. We expect gradual progress given political constraints," the report said.

Emerging Market Equities Outlook

However, in terms of Emerging Market (EM) Equities, Invesco report said the EM equities have the most attractive valuations relative to other regions, albeit with wide variation within EM. "We anticipate Chinese stocks to continue to outperform while India may struggle."

We expect a weaker USD and better growth outside of the US to support performance of non-US assets, especially emerging market (EM) equities and EM debt.

Global Financial Market Trends

The report further mentioned that the global financial markets are poised for continued gains in 2026, supported by resilient private-sector balance sheets and a shift toward broader market leadership.

The report highlighted that the lower US policy rates and greater fiscal spending in Europe, Japan, and China should lead to an improved global growth trajectory next year, and higher global equity markets.

"With many major central banks on hold, Fed cuts should contribute to a soft dollar environment. Falling costs for hedging US dollar (USD) exposure are likely to encourage investors to increase hedge ratios and exert downward pressure on the dollar," it said.

Rebalancing of Investment Opportunities

The outlook points to a rebalancing of investment opportunities. While U.S. equities, particularly large technology and artificial intelligence-related stocks, remain expensive, Invesco sees more attractive valuations in non-U.S. markets, smaller-capitalization stocks and cyclical sectors. A pickup in global activity could support broader market participation and reduce concentration risks tied to mega-cap technology shares.

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