A leading global asset manager has expressed cautious optimism for India's economic trajectory in 2026, highlighting the nation's reform momentum and a potentially improving relationship with the United States as key pillars of resilience.
Reforms and Relations Fuel Cautious Optimism
In its recently released "2026 Annual Investment Outlook: Resilience and Rebalancing" report, Invesco Strategy & Insights noted that despite equity market challenges linked to geopolitical tensions, India's prospects are strengthening. The firm pointed to ongoing domestic economic reforms and signs of stabilization in US-India relations as primary reasons for this positive assessment.
The report projects that India will remain the world's fastest-growing large economy, with growth expected to accelerate modestly once the Reserve Bank of India (RBI) begins cutting interest rates. It emphasized that continued reforms are critical for raising the country's long-term growth potential and building economic resilience, though progress may be gradual due to political considerations.
Global Rebalancing and Emerging Market Dynamics
Invesco's analysis presents a picture of global rebalancing. It anticipates that global financial markets will continue to advance in 2026, supported by strong private-sector finances and a broadening of market leadership beyond a few giant stocks.
The report forecasts that lower US policy rates and increased fiscal spending in economies like Europe, Japan, and China should improve the global growth path and lift equity markets worldwide. This environment, with many central banks holding steady, is expected to lead to a softer US dollar (USD). Falling costs to hedge against USD exposure are likely to encourage investors and put further downward pressure on the currency.
Investment Shifts and Valuation Gaps
This shift points toward a rebalancing of investment opportunities. While U.S. equities, especially in the large-cap technology and artificial intelligence sectors, are seen as expensive, Invesco identifies more attractive valuations in non-U.S. markets, smaller companies, and cyclical sectors. A pickup in worldwide economic activity could support a wider range of stocks and reduce the current heavy reliance on a handful of mega-cap tech shares.
Within Emerging Market (EM) equities, which the report calls the most attractively valued region overall, performance is expected to vary. Invesco anticipates Chinese stocks to continue their outperformance, while suggesting that Indian equities may face some struggles. The overall EM asset class, including both equities and debt, is expected to be supported by a weaker USD and better growth outside the United States.
