India's growth will be a surprise in 2026: Kotak's Nilesh Shah on equity market outlook next year

Global Economic Outlook - The global economy is transitioning to a phase where fiscal policy is taking precedence, while monetary support is gradually diminishing. Rate cuts are in progress, but the conditions that previously drove strong market rallies are no longer present. Global growth is expected to remain positive but may experience a slight slowdown in CY26 compared to CY25 [1][12]. Risks Impacting Global Markets - Key risks identified for the global market include de-dollarization, the resurgence of inflation, potential AI bubbles, and the ongoing US-China rivalry. These factors could significantly influence market dynamics in the upcoming year [2][12]. China’s Market Dynamics - Despite China's economic growth, long-term volatility in equity markets has been noted, with repeated boom-and-bust cycles limiting wealth creation for investors. The CSI 300 index is currently trading at levels similar to 17 years ago, indicating potential risks for global capital flows towards alternative markets like India in the event of a sharp correction in China [3][12]. India’s Growth Prospects - India's structural transformation over the past decade has led to macro stability and stronger balance sheets, providing resilience against global shocks. However, growth is expected to remain in the mid-single digits, with the country being the fastest-growing major economy but unlikely to achieve double-digit growth. Challenges include slowing private investment and the risk of AI disrupting employment in key sectors [4][5][12]. Equity Market Insights - While benchmark indices are near record levels, many individual stocks are significantly below their all-time highs. Earnings growth for large companies has been weak in recent quarters, but a rebound into double digits is anticipated for the next year. Investors are cautioned against assuming that past returns will be replicated in the future [6][7][12]. Sectoral Opportunities - Financial services and consumer-oriented businesses are positioned favorably due to policy measures that increase disposable income for taxpayers and borrowers. Healthcare and e-commerce are also highlighted as medium-term opportunities [9][12]. Fixed Income and Precious Metals - The Reserve Bank of India is expected to support growth as inflation has decreased, allowing for further easing. Gold and silver remain integral to the asset allocation strategy, driven by central bank purchases and geopolitical uncertainties, although investors are advised to limit exposure due to volatility [10][12]. Overall Market Sentiment - The outlook for CY26 is characterized by moderation rather than exuberance, with expectations of positive returns across equity, fixed income, and precious metals. Investors are encouraged to maintain diversification, manage expectations, and focus on long-term fundamentals rather than short-term gains [11][12].