Global risks include a potential delay in the US-India trade agreement, the possibility of a sharp correction in US equity markets, and renewed geopolitical tensions.
The equity market is likely to fare better in 2026 after a subdued 2025, supported by expectations of a gradual turnaround in investor sentiment and improving earnings momentum across a broader set of companies, Aditya Birla Sun Life AMC said in its equity outlook for 2026.
The asset manager expects equity returns in the range of 10-12 per cent this year.
According to the fund house, strong domestic liquidity, prospects of a return of foreign portfolio investor (FPI) flows, and relatively compressed valuations compared with last year are likely to aid the market's performance.
While the rupee may pose a near-term challenge, it could emerge as a longer-term opportunity.
'A trade deal could arrest excessive currency depreciation and act as a meaningful trigger for renewed foreign institutional investor inflows,' it said.
A negative impact of artificial intelligence on India's demographic dividend and continued slowdown in domestic consumption could emerge as headwinds in 2026.
Global risks include a potential delay in the US-India trade agreement, the possibility of a sharp correction in US equity markets, and renewed geopolitical tensions.
The asset manager said largecap stocks are likely to continue to outperform midcap and smallcap stocks.
'From an asset allocation point of view, domestic equities remain attractive relative to other asset classes while fixed income would likely offer stability as the rate cycle turns positive.
'Overall, 2026 is not expected to be a straight line as geopolitics, trade concerns and currency movement continue to persist as real risks. After the reboot and refresh, investors can look forward to reclaiming earnings-led returns,' the AMC said.
'Focus on portfolio resilience, not return maximisation in 2026'
In an environment shaped by global uncertainties, investors should focus on resilience-driven portfolio construction rather than opting for return maximisation, wealth management firm Client Associates said in its 2026 outlook.
'While long-term growth prospects for Indian equities remain intact, elevated valuations and near-term moderation in earnings growth warrant a calibrated approach to equity exposure,' it said.
The wealth manager expects earnings growth for Sensex companies to remain subdued in the near term followed by a recovery over the medium term supported by improving macro conditions and accommodative monetary policy.
'Largecap-oriented strategies better placed to deliver in 2026'
Large-cap-oriented diversified strategies and select hybrid funds appear better placed on a risk-reward basis in 2026, Shriram Wealth said in its outlook.
'Large Cap oriented diversified strategies including largecap, flexicap and multicap along with hybrid funds such as balanced advantage, multi-asset, etc appear better placed on risk-reward basis,' it said.
The wealth manager further said that investors could consider diversifying a portion of their portfolios, around 10 to 15 per cent, into global equities to benefit from opportunities across sectors such as technology and healthcare.
Feature Presentation: Aslam Hunani/Rediff
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