Wall Street thinks Indian stock market will recover in 2026
What's the story
Top Wall Street firms, including Morgan Stanley, Citigroup, and Goldman Sachs Group Inc., are predicting a turnaround for India's lagging markets in 2026. The forecast comes after a tough year for Indian stocks, which have underperformed their global peers by the widest margin in over three decades. The rupee has also been Asia's worst performer while bonds are under pressure from government debt supply.
Market sentiment
Early signs of recovery and potential shifts in investment flows
Despite challenges, early signs of a turnaround are emerging. Growth-supportive measures and a pause in earnings downgrades are improving market sentiment. Investors are also preparing for a potential shift away from artificial intelligence (AI) stocks, which could redirect foreign investment flows toward markets like India.
Market outlook
India's market performance and future prospects
Angela Lan, a senior strategist at State Street Investment Management, said a rebound in India's markets "appears increasingly likely in 2026." She noted that the earnings downgrade cycle is mostly behind us with recent policy measures, rate cuts, and GST rationalization starting to impact consumption and credit. The MSCI Inc's India gage has risen by 8.2% this year but still lags the broader emerging market benchmark by its widest margin since 1993.
Financial forecast
India's currency and bond market outlook
The Indian rupee, which hit a record low in November, is down 4.3% this year but may be nearing a near-term bottom. ING Bank NV sees it as the regional currency with the most potential for recovery. Local bonds and currency could benefit from a more stable global environment and high carry, according to Anders Faergemann of PineBridge Investments.
Economic resilience
India's economic growth and corporate earnings
Despite the challenges of 2025, India's economy has performed better than expected. The country's gross domestic product (GDP) grew by 8.2% in the September quarter compared to last year. Corporate earnings have also shown tentative signs of recovery with profits for the top 100 firms rising by 12% in the same period, slightly above expectations and marking a break from several quarters without estimate cuts.