Wall Street firms predict a major rebound for Indian markets in 2026, The Indian economy grew 8.2 percent in the September
- Wall Street firms predict a major rebound for Indian markets in 2026 after a year of underperformance caused by US tariffs.
- The Indian economy grew 8.2 percent in the September quarter and corporate earnings are stabilizing despite the currency crisis.
- Investors are expected to rotate money out of the overcrowded AI trade and back into India as the Reserve Bank cuts rates.
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| Photo by Naveed Ahmed on Unsplash |
India is finally looking up after enduring a brutal financial battering in 2025. The country suffered its worst market underperformance in decades and left many investors counting their losses. Stocks trailed global peers by historic margins while the rupee collapsed to become the worst performing currency in Asia. However the mood on Wall Street is shifting. Financial titans like Morgan Stanley and Goldman Sachs are now betting on a massive turnaround as the new year approaches.
The primary driver of the recent pain was external pressure. President Donald Trump implemented aggressive tariff policies that hit Indian exporters harder than anyone anticipated. These levies crushed corporate earnings and scared away foreign capital. The resulting dollar shortage amplified the strain on the local economy. Total exports plunged nearly 12 percent in October alone and pushed the trade deficit to record highs. This created a perfect storm that stalled the country's multi year equity rally.
Smart money is now looking for a rotation trade. Investors have spent years pouring capital into the artificial intelligence sector in North Asia and the United States. Strategists believe that trade is becoming overcrowded and frothy. CLSA analysts suggest that a rotation will likely occur in the first half of 2026. Money moving out of expensive tech stocks needs a new home. India looks like a prime candidate for those seeking diversification away from the AI bubble.
The domestic economic engine remains surprisingly resilient despite these external shocks. Official data shows the economy expanded by 8.2 percent in the September quarter. This figure beat many gloomy forecasts. Corporate profits for the top 100 firms also rose by 12 percent during the same period. This suggests that the relentless cycle of earnings downgrades has finally stopped. Analysts view this stabilization as the green light for foreign capital to return.
The Reserve Bank of India has worked overtime to prevent a total financial collapse. The central bank cut interest rates by 100 basis points and bought record amounts of government debt to ease liquidity pressures. Governor Sanjay Malhotra recently hinted that the rupee has likely found its floor after falling 4.3 percent this year. Traders now expect the central bank to unleash another rate cut in early December to further stimulate growth and support the bond market.
Valuation remains the biggest sticking point for skeptical investors. The benchmark Nifty 50 Index trades at more than 20 times forward earnings. This is expensive compared to historical averages and other emerging markets. Local investors have propped up these prices by pouring a record $80 billion into the market this year. Foreign buyers will need to see sustained growth to justify buying in at these rich levels.
The consensus is cautiously optimistic as 2026 draws near. Global funds have already started tiptoeing back in with $1.7 billion in recent inflows. The general sentiment is that the worst of the tariff shock is now priced in. If the Reserve Bank continues its monetary support and global trade tensions ease even slightly India is poised to reclaim its spot as a darling of the emerging market world.