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Franklin Templeton India Asset Management (India) Pvt Ltd has released a press note on the market outlook for the month of November. As per the press note, there are clearer signs of stabilization and recovery in 2026. Nifty 50 earnings for FY26/27 expected to grow 7%/18%. Indian market valuations reasonable vs last year and appear attractive. Sectors that may offer selective opportunities are Financial Lending, Consumption, Realty, IT Services, and Capital Goods. Investors could lean on diversified funds such as flexi-cap, multi-cap, multi-factor, and large & mid-cap funds - to gain broad exposure across the market.

Outlook: The year 2025 was defined by severe global trade disruptions and persistent geopolitical challenges. Indian equities managed modest double-digit gains during CY25 but significantly lagged global benchmarks. The domestic market faced continuous pressure from punitive U.S. trade actions, sustained FPI outflows, sluggish urban demand, earnings downgrades, and INR depreciation. As we move into 2026, the narrative is shifting toward recovery.

The outlook for 2026, appears relatively more constructive, subject to evolving global and domestic conditions:

Policy Tailwinds: The effect of direct and indirect tax stimuli (like GST cuts) are expected to fully flow through, supporting consumption. Early GST data seems to indicate a net positive impact on demand.

Monetary Support: RBI's support has gone beyond just interest rate cuts. It extends to easy liquidity and freeing up norms to facilitate wider lending.

Rural Strength: Favourable monsoons, healthy reservoir levels and better inflation-adjusted rural wages paint a positive picture for rural consumption.

Capex Revival: While capital expenditure was muted through FY25 and early FY26 due to soft global and local demand, momentum could pick up as demand signals firm up.

Earnings Stabilization: Corporate earnings forecasts are showing signs of stability, suggesting that the sharp downgrades may be behind us providing a stronger base for potential market growth in FY27. The primary challenge in 2025 was the persistent year-long cycle of earnings downgrades which saw FY26/FY27 Nifty 50 earnings cut by -10%/-8%.

Heading into 2026, there are clearer signs of stabilization and recovery. The recent Q2FY26 reporting season showed signs of improvement against low consensus expectations with Nifty 500 PAT growing 15% YoY. EPS revisions for FY26/27 have stabilized over the past three months with upgrades in select pockets.

FY26/27 Nifty 50 earnings are expected to grow 7%/18%. The acceleration in earnings is expected to be fuelled by,

Macro support: Nominal GDP growth is expected to increase from ~9% in FY26 to closer to trend of 10-11%. A combination of easing financial conditions, an uptick in consumption demand and longer-term benefit from GST rate cuts may provide support to earnings growth.

Sectoral Momentum: Financials are poised for a recovery driven by a combination of net interest margin normalization and a pick-up in credit growth. Domestic cyclicals (autos, capital goods, construction materials) and healthcare services are also expected to be contributors to overall index earnings. Indian market valuations are now more reasonable compared to last year and appear attractive relative to the sharp appreciation witnessed in several emerging markets. However, headline valuation metrics mask significant divergence across sectors.

Rapid structural shifts such as the rise of new retail and electronics manufacturing formats and established players challenging incumbents reinforce the need for a bottom-up stock selection approach.

In 2026, certain sectors may offer selective opportunities in:

Financial Lending: Opportunities in specific areas of the financial lending space are poised for a pick-up in credit growth and steady asset quality trends.

Consumption: Changing consumption trends are poised to benefit from the revitalized domestic demand.

Realty: While 2025 was a disappointing year for equities in this space, the core demand and pricing dynamics remain healthy with valuations more attractive.

IT Services: Valuations have become more reasonable from a medium-term perspective. A positive turn in the global corporate spending environment could unlock upside here.

Capital Goods: While this sector remains broadly expensive, attractive entry points are beginning to emerge in specific pockets.

Opportunities for Investors: 2025 will mark the tenth consecutive calendar year that Indian equities have closed higher than they started. This unbroken streak is a testament to India's long-term growth story. Yet, this story also shows that returns can be lumpy and volatile. Investors could lean on diversified funds - such as flexi-cap, multi-cap, multi-factor, and large & mid-cap funds - to gain broad exposure across the market. For those who want a better guard against short-term equity volatility, hybrid funds, including multi-asset allocation funds and balanced advantage funds, offer a smoother ride by balancing exposure between asset classes. Investors need to stay invested, remain diversified and could harness the compounding power of the India growth story.

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