Stock Market Outlook 2026: Where are biggest risks, and which asset class could create maximum wealth?

Indian equity markets may see a better year in 2026 compared with 2025, supported by an expected recovery in corporate earnings, easing interest rates and supportive domestic fundamentals, though global risks remain key monitorables, fund managers said during a special discussion with market expert Anil Singhvi.

A Balasubramanian, MD and CEO of Aditya Birla Sun Life AMC, said 2025 turned out to be largely flat despite multiple negative global cues.

Market Outlook 2026: Earnings Recovery in Focus

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“In 2025, volatility was low, and the Indian equity market behaved well despite adverse news. Policy measures taken last year, including interest rate cuts of around 1.5 per cent and steps to boost economic growth, are likely to show their impact in 2026,” he said.

He added that if India performs well economically, markets are also expected to do well.

Pratik Agrawal, MD and CEO of Motilal Oswal AMC, said India is likely to perform better than most global peers in 2026.

“Over the last 12–15 months, earnings estimates were cut by around 10–12 per cent, which led to a lacklustre market in 2025. Recent quarterly numbers indicate early signs of earnings improvement, which could support markets over the next 6–12 months,” he said.

Markets Follow Earnings: Fund Managers’ View

Trideep Bhattacharya, President and CIO (Equities) at Edelweiss Mutual Fund, said markets eventually follow earnings over the long term.

“If earnings improve, market performance should also improve. At the beginning of 2026, the underlying fundamentals for India appear better compared with 2025,” he said.

Key Risks to Watch in 2026

On risks, Bhattacharya highlighted global factors such as the India-US trade deal and high global tariffs. “The US tariff level is currently near 17 per cent, last seen in 1930. If trade negotiations are not resolved by mid-2026, it could hurt global trade and markets, including India,” he said.

He also flagged heavy global investments in artificial intelligence as a potential risk if returns fail to match expectations.

Balasubramanian said domestic risks appear limited but cautioned that slower nominal GDP growth and weak earnings growth could impact markets. He also pointed to risks emerging from global private credit markets, particularly in the US.

Asset Allocation: Where Fund Managers See Value

On asset allocation, Agrawal ranked equities as his top preference for 2026, followed by gold and silver, debt, and real estate.

“Gold and silver have already delivered strong returns over the last two years, while real estate has become less attractive due to affordability and operational challenges,” he said. Bhattacharya said equities and precious metals remain the best hedge against inflation.

“Equities should benefit as earnings recover, while gold can help manage risks. Real assets could protect against currency devaluation, while fixed income remains the least attractive,” he said.

Balasubramanian also said equities should remain the primary asset class, citing the possibility of foreign investor inflows after two years of net selling.

Sectors in Focus and Return Expectations

On sectoral themes, experts highlighted financials, consumer discretionary, electric vehicles, renewable energy, NBFCs and capital market-linked stocks as potential performers in 2026.

On index returns, the fund managers refrained from giving aggressive targets. Balasubramanian said new market highs are possible, while Bhattacharya and Agrawal said returns are likely to broadly track earnings growth of around 10–12 per cent in 2026.