Global and
Indian Equity Market Outlook: A Tale of Two Timelines
The global equity landscape presents a complex yet
fascinating picture, balancing moderating inflation and interest rate cycles in
developed markets against the robust, domestically-driven growth of emerging
economies, especially India. Understanding the interplay between macroeconomic
fundamentals and market dynamics is key to navigating the next 12 months
(short-term) and the 1-3 year horizon (medium-term).
Big Picture: Growth Is Slower Globally, but India Still
Stands Out
The latest IMF World Economic Outlook (Oct
2025) projects:
- Global
GDP growth around 3.2% in 2025 and 3.1%
in 2026, with advanced economies at ~1.5% and EMs just above 4%.
- US growth
revised up to about 2.0% in 2025 and 2.1%
in 2026, helped by an AI-investment boom offsetting tariff
headwinds.
- Euro
area expected to grow about 1.3% in 2025 and 1.2%
in 2026, according to the European Commission.
- China projected
at 4.8% GDP growth in 2025; still solid, but a far cry from
its double-digit years.
- India remains
the standout: IMF, Moody’s and Deloitte all cluster around 6.5–6.9%
annual growth over the next couple of years, making it one of the
fastest-growing major economies globally. India grew at much higher
7.8% as per latest quarter results(Q1 FY26-April -June)
🌎 Global Economy &
Equity Outlook
The dominant narrative globally is the shift from high
inflation and restrictive monetary policy toward a "soft landing"
scenario.
Short-Term (Next 12 Months: 2026)
- Moderating
Global Growth: Global growth and inflation are expected to moderate,
though uncertainty remains elevated due to geopolitical risks and ongoing
trade policy shifts.
- The
US Focus: The US economy is expected to see slower but still positive
growth, supported by resilient consumer balance sheets and robust
AI-driven capital expenditure (CapEx). The Federal Reserve (Fed) is
anticipated to pause cutting interest rates, likely front-loaded in the
first half of the year.
- Projected
Returns (US): Most short-term forecasts are bullish, anticipating
positive returns in the range of 6-8% for 2026, driven primarily
by earnings growth and the rate-cut cycle. The biggest risk is big
time investments into AI (>500 Bil in 2025 itself) and projected
optimistic Returns on AI related investments by big IT companies which is
driving the current US equity rally . Is it a bubble or the returns/
profits will back this super optimism?
That time will only say as this is the single biggest risk. The "Magnificent
Seven" (Google, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla)
have driven a majority of the S&P 500's gains in recent years. This
creates a scenario where if these stocks perform well, the index looks
healthy, even if the other 493 companies are struggling
- Europe
and China: Europe's outlook is supported by shareholder distributions
and fiscal spending plans. China is expected to meet its growth target of
around 4-5% for 2026, relying on continued policy support.
- Projected
Returns (Europe): Similar to the US, a positive, but moderate return
in the range of 5-7% is often projected, supported by easing
inflation & monetary easing(European Central bank cutting rates)
- Projected
Returns (China): Volatility and policy uncertainty are high. Returns
could be range-bound in the short term, possibly 3-5%, with
significant dispersion.
Medium-Term (1-3 Years: 2027-2028)
- Structural
Shifts: The medium-term outlook is shaped by structural forces like Artificial
Intelligence (AI) investment & ROI on these AI investments( single biggest
risk), geopolitical fragmentation, and shifting global supply chains.
- Developed
Markets (US & Europe): Growth is expected to converge towards
potential, with AI-related investments likely driving CapEx. Ten-year
forecasts from major institutions suggest annualized total returns for:
- Projected
Returns (US): Around 6-7% annually (primarily driven by EPS
growth). Major risk is around ROI in heavy AI related investments by Big
tech(Magnificent Seven companies)
- Projected
Returns (Europe): Around 7% annually (balanced between
earnings and shareholder yield).
- Emerging
Markets: Emerging Markets, including India, are positioned for
stronger returns due to higher expected Earnings Per Share (EPS) growth.
- Projected
Returns (Emerging Markets ex-Japan): Forecasts point to total
annualized returns of over 10% for the next decade, with India
being a key driver.
India: The
Outperformance Story
India's equity market is increasingly being viewed through a
structural lens, where strong domestic fundamentals are expected to decouple
its performance from global headwinds over the long term.
I have always been bullish on Indian economic prospects
and hence market returns( which has down a strong co-relation with GDP growth
in India in long term). In my blogs in early2025(March/ April) when Nifty was
at 22000(due to intense volatility), I has projected steady medium term rise to
28000 by FY26 end and today Nifty 50 is at 26000(despite short term volatility due
to Trump’s tariff mania , Geopolitical reasons , massive FII outflows.
In last month blog (Abhi to party shuru hui Hai), I talked about this medium
& long term optimism about Indian markets cause of structural India growth
and demand story , strong macros , favourable govt & RBI policy & demographic
dividends.
📈 Economic Backdrop: GDP
& Consumption
India remains the fastest-growing major economy, with
recent GDP data proving resilient.
- GDP
Growth: Q2 FY26 real GDP growth was estimated to be strong, around 7.5%
YoY, driven mainly by robust services growth and private consumption.
Commerce and Industry Minister Piyush Goyal has expressed confidence that
India's growth could touch 7% for the fiscal year, comfortably above
global projections. My estimates are that we will easily grow at 8% in
FY26 and FY27. We have become the 4th biggest GDP after beating
Japan this year & will soon become the 3rd biggest after beating
Germany(which is in almost recession) In 2027.
- GDP-Equity
Correlation: A unique feature of the Indian market is the strong,
reliable correlation between real GDP growth& market equity returns (in USD terms) over
decades. This suggests that the economic expansion is effectively
translating into corporate profits and stock market performance.
- Consumption
& Capex Revival: Policy measures like GST rationalization and
income tax relief are poised to boost domestic consumption significantly.
Private Capital Expenditure (CapEx) is projected to become a stronger
contributor to growth from 2027 onwards.
Short-Term Outlook (Next 12 Months)
- Near-term
Volatility: The market may remain somewhat range-bound in the
immediate short-term due to slightly higher valuations on an absolute
basis(Nifty 50 at 22.7 versus 22.3 of last 5 years average) and lingering
global uncertainties (e.g., US tariffs/trade policy, wars ).
- Earnings
Pick-up: An improvement in macro indicators and a strengthening
earnings trajectory could set the stage for a stronger rally from the second
half of 2026 onward. MSCI India consensus EPS growth estimates for the
2025/26 calendar year are around 13%. Consensus EPS growth for India in
2026 is broadly in the mid-teens (~14–16%)
- Projected
Returns (India): Given the robust but consolidating phase, short-term
returns are projected to be positive but potentially moderate, likely in
the 10-12% range.
-
Goldman’s Nifty target of 29,000 by
end-2026 implies ~12% upside from recent levels.
-
HSBC’s Sensex target of 94,000 by
end-2026 implies ~10–11% upside.
-
Morgan Stanley’s call is at 95000 by 2006
end (12% upside from current levels)
-
My estimates are much more optimistic (based on
strong macros , structural growth story and earnings growth picking up &
FIIs returning back in Oct/ Nov after over-selling in last few quarters) at 15-20%
growth with Nifty 50 at 31000 to 32000 levels (from 26000 level now)
Medium-Term Outlook (1-3 Years)
- Structural
Bull Run: The medium term is highly constructive. Supported by an
expanding domestic market, strong macro fundamentals, continued structural
reforms (like 'Make in India' , GST and Income Tax rationalization, LI
incentives ), and rising investor inflows from Domestic Institutional
Investors (DIIs), India is set for a structural bull market. MSCI India
consensus EPS growth estimates for the 2026/27 calendar year are higher,
at around $16\%$.
- Projected
Returns (India): Over the 1-3 year horizon, India is expected to
deliver premium returns. Annualized returns are projected to be in the 12-18%
range, making it a key outperformer among major global markets. My estimates
are more bullish at 15-18% growth
🎯 Attractive Sectors in
India (Projected Returns Perspective)
The best-performing sectors will be those that align with
India's domestic growth drivers: Consumption, Infrastructure, and Policy-driven
manufacturing.
|
Sector |
Rationale for Growth (Medium-Term) |
Key Drivers |
|
Consumer Discretionary/Automobiles |
Direct beneficiary of rising disposable income, GST
rationalization (lowering prices), and pent-up demand. |
Festive seasons, tax relief, credit policy easing for auto
loans. |
|
Infrastructure & Capital Goods |
Supported by the government's sustained focus on CapEx and
the eventual revival of private CapEx (from 2027). |
Government's National Infrastructure Pipeline,
urban development, manufacturing supply chain shifts. PLI incentives |
|
Banking and Financial Services (BFSI) |
Expected to remain strong due to steady credit growth,
improved liquidity transmission, and the overall financial health of the
economy. |
Steady credit growth, low inflation supporting margins,
formalization of the economy. Monetary easing by RBI |
|
Renewable Energy |
Driven by aggressive national targets (e.g., 500 GW of
renewable energy capacity by 2030) and supportive government policies. |
Solar, wind, Green Hydrogen and bioenergy capacity expansion; falling
technology costs. |
|
Healthcare & Pharmaceuticals |
Increasing healthcare demand from an aging population,
rising disposable income, and government initiatives like Ayushman Bharat. |
Higher health insurance penetration, focus on domestic
manufacturing (APIs). |
|
Defence & Electronics Manufacturing |
Policy-driven growth from the focus on Self-Reliance
(Aatmanirbhar Bharat). Defence production is targeted to triple by 2029. Electronics(including
Smart phones) have become one of the largest exports driver recently |
Import substitution, technology-led manufacturing schemes
(PLI). |
Final Takeaway
The next 12 months for global equities will be a
transitional phase, defined by the pace of rate cuts, Geopolitical issues , US-India
trade deal closure , returns on big AI investments & the outcome of the US
'soft landing.' However, the medium-term outlook is distinctly skewed in
favor of India. Its robust & resilient GDP-led earnings growth,
powerful domestic consumption engine, and aggressive structural reforms
position it as a key market for outperformance.
Happy investing
Amardeep
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