Indian equity markets are set to reclaim their long-term growth trajectory after a challenging reset phase in 2025, with Nifty earnings expected to grow in the low-to-mid teens over the next couple of years, according to Aditya Birla Sun Life AMC’s Annual Market Outlook 2026.

“Nifty earnings are expected to grow in the range of low-to-mid teens over the next couple of years. Not just equity, but debt too would benefit from this refresh with transmission of rates and an expected 25-bps rate cut by the RBI in the coming months,” the AMC said in its report.

The fund house described 2025 as an eventful yet difficult year, marked by geopolitical uncertainty, muted earnings growth and valuation compression. Despite these headwinds, the Nifty50 delivered double-digit returns of 10.5%, extending India’s market rally to a 10-year winning streak. However, investor experience remained uneven, as small- and mid-cap stocks underperformed frontline indices.

“The year 2025 can be best characterised as an eventful and challenging year with the headline indices returning double-digit returns and extending their winning streak to 10 years in a row,” the fund house said in its outlook.

Markets last year benefited from interest rate cuts, tax relief, a sovereign rating upgrade and record systematic investment plan (SIP) inflows. Still, persistent global uncertainties, trade frictions and tariff-related concerns weighed on sentiment, leading to cautious foreign investor positioning and India underperforming both developed and emerging markets, despite being the world’s fastest-growing major economy.

Aditya Birla Sun Life AMC said the recent “reboot” phase has helped clear market excesses, with valuation froth moderating, equity supply easing, foreign investor positioning remaining light and currency competitiveness improving following a sharp depreciation of the rupee.

Looking ahead to 2026, the fund house expects a “refresh” phase, supported by accommodative fiscal and monetary policies. Cumulative rate cuts of 125 basis points (bps), liquidity infusion, tax reductions and GST rationalisation are seen laying a strong foundation for growth. Urban consumption is expected to pick up amid benign inflation, aiding an earnings revival.

From an asset allocation perspective, domestic equities remain attractive relative to other asset classes, while fixed income is likely to provide stability as the rate cycle turns favourable. The AMC also expects debt markets to benefit from better rate transmission and a potential 25 bps rate cut by the Reserve Bank of India in the coming months.

Aditya Birla Sun Life AMC believes the phase of indiscriminate small- and mid-cap outperformance is behind, with large-cap stocks better positioned in the next leg of the market cycle. As earnings start catching up in 2026, the gap between profit growth and market capitalisation growth could propel markets higher, it said.

 “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,” it noted.

While risks from geopolitics, trade tensions and currency movements persist, the fund house believes investors can look forward to earnings-led returns. It also expects the phase of indiscriminate small- and mid-cap outperformance to fade, with large-cap stocks better positioned in the next leg of the market cycle as earnings catch up with market valuations.