India`s capital markets projected to grow steadily in FY26
India's capital markets are projected to grow steadily in FY26, supported by expected GDP growth of 6.2–6.5 per cent and strong domestic demand, according to a new report released on Tuesday.
The Nifty 50 is anticipated to deliver 12-15 per cent returns, with EPS estimates around Rs 1,160. While, foreign portfolio investors (FPI) have shown renewed confidence, injecting over $4 billion in recent sessions, according to smallcase managers.
Global trade tensions, US tariffs, geopolitical uncertainty remains a key risk for Indian capital market. However, they expect equities to outperform other asset classes in FY26, supported by favourable valuations and a strong growth outlook.
“As of May 18, a total of 878 companies have reported their earnings, with a 10 per cent year-on-year growth in Q4 FY25,” said Shailesh Saraf, smallcase Manager and Founder, Value Stocks.
Despite a modest 5.79 per cent year-on-year growth for FY25 — significantly lower than the 35.1 per cent growth recorded in FY24, the market sentiment has improved, reflected in FII net inflows of Rs 16,757 crore in FY26 so far, alongside an 8 per cent return from the Nifty 50 and a 10 per cent gain in the Smallcap 100 index, Saraf mentioned.
The market has bounced back significantly over the past two months, fully reversing its year-to-date decline.
The smallcase managers believe that with inflation below 4 per cent, the real interest rate has turned significantly positive, strengthening the case for policy easing.
The market has effectively priced in a cut, even if it's not yet formally announced. Lower borrowing costs can spur corporate investment and consumer spending, benefiting sectors like banking, real estate, and autos. Equity markets may rally in anticipation of improved earnings and liquidity.
Robin Arya, smallcase Manager and Founder, GoalFi said, “a cautiously optimistic outlook for FY26 is justified. Key positives include a stable government, the prospect of lower interest rates, and potential earnings rebound”.
“We believe this year will be of consolidation with earnings improvement in companies and theme-based investing will be prevalent,” he added.
India’s defence sector is set to grow robustly in FY26, backed by a projected capex outlay of Rs 1.8 trillion and a $130 billion opportunity over FY25–29, with 7–8 per cent annual growth.
