India in 2026

The market setup for next year is far better than in 2025, provided domestic flows continue to be robust

- AKASH PRAKASH

The Indian markets are ending calendar year 2025 on asubdued note.

While they are near an all-time high, India has been the worst-performing major equity market in the world. Flat in US dollar (USD) terms, we have been left behind by global emerging-market (EM) indices, which are up 29 per cent in USD as of end-November 2025. This is the worst relative performance for India since 1993. India has now dropped to third place in terms of EM weighting and is just about half the weight of China. Only 15 months ago, there was serious talk of India overtaking China — how narratives change!

India has also been shunned by foreigners, with foreign portfolio investors (FPIs) selling over $18 billion in 2025 year-to-date, marking five years of zero flows. The saving grace has been domestic flows, which continue to power ahead, with $80 billion invested by domestic institutional investors to date and the number of investors crossing 135 million.

India has lost mindshare with global investors. Most are underweight the country and see no reason to raise weightings. We are not part of the artificial intelligence (AI) trade, and have disappointed on both growth and earnings. You can’t be the most expensive market in the world, as India was coming into 2025, and then deliver negative earnings revisions and single-digit earnings. India is a consensus underweight at the moment.

However, looking into 2026, the prospects look better, to meat least. My more optimistic take is based on a few assumptions or building blocks.