Indian equities have a stable macro environment for 2026 with healthy corporate balance sheets and earnings recovery. However, an ICICI report warns that high valuations will lead to measured returns, making stock selection key.
The broader macro environment for Indian equities appears stable as one looks ahead to 2026, according to a report by ICICI Prudential Alternate Investments. Corporate balance sheets are healthier, and early signs of an earnings recovery are becoming more visible across sectors, it has asserted in the 'Outlook 2026: Beyond Narratives' report.
Measured Returns Expected Amid High Valuations
"However, after an extended market cycle and a rerating across many parts of the market, much of this macro and earnings optimism is already reflected in valuations. In this context, broad-based, index-led returns are likely to be more measured going ahead," the report read.
Stock Selection to Outweigh Narratives
As Indian equities transition into a more mature phase of the market cycle, the opportunity set remains attractive, but outcomes are likely to be driven by informed stock selection rather than narratives, it noted.
"We believe going ahead, execution is likely to trump narratives, and disciplined micro research is likely to outweigh broad macro views," it has noted.
Strong Fundamentals Underpin Economic Outlook
As one heads into the second quarter of this century, India's economy appears to be in a "good shape." The demographic dividend, with a large working-age population entering the workforce, positions India favourably relative to most other economies facing ageing populations, the report noted.
Capital flows from overseas investors have been lower than in history, but given the growth setup, it has the potential to attract foreign net inflows, it has asserted.
The fiscal stance of the Government is on a consolidation path and heading in the right direction.
Healthier Corporate Balance Sheets
"Corporate balance sheets are in better shape, which is encouraging as well. Between FY19 and FY25, the operating cash flows, PAT and investing cash flows have grown at a CAGR of 18%,15% and 14% respectively as against the single digit growth in the FY12 to FY19 period."
Future Growth Catalysts
Given this backdrop, ICICI Prudential Alternate Investments sees a case for the Indian economy to grow at a higher pace, with inflation also normalizing from previously subdued levels.
"What could act as a catalyst is the improvement in geopolitics and the trade relations between India and its major trading partners (US, China, Europe etc.). These factors have the potential to improve sentiment and can position India favorably in new supply chains that are emerging," the report read. (ANI)
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