In an exclusive interview, Shahzad Madon, the Managing Director and CEO of TCG Asset Management Company (AMC), provided a detailed outlook on the trajectory of the Indian rupee, the stock market's potential in 2026, and the future path of interest rates set by the Reserve Bank of India (RBI) and the US Federal Reserve. His analysis points to a nuanced picture of cautious optimism for equities alongside a gradual depreciation pressure on the domestic currency.
The Indian Rupee: A Medium-Term Weakening Bias
When asked about the rupee's position by the end of the fiscal year 2026, Madon highlighted a historical pattern of gradual depreciation against the US dollar over the past three decades. He noted that this trend often sees steep declines following major economic crises, global financial shocks, or external pressures like volatile oil prices.
The expert pointed out that India's widened current account deficit is currently contributing to a weaker bias for the rupee, especially amid global US dollar strength. While predicting short-term movements is challenging, Madon believes that over the medium to long term, the Indian currency is likely to remain on a weakening trajectory.
Stock Market Outlook: Constructive for 2026 with Selective Opportunities
Shifting focus to equities, Madon expressed a constructive view for the Indian stock market in 2026. He stated that the market appears to be entering an earnings upgrade cycle, with upcoming data expected to reinforce this positive trend. Although valuations have moderated from their peaks, he described the market as neither expensive nor undervalued on a broader basis.
Supported by improving corporate earnings and a constructive macroeconomic backdrop, Madon projected that the market is well-positioned to potentially deliver returns in the low to mid-teens percentage range in 2026. However, he emphasized that the real opportunity lies in specific pockets of the broad market where stocks are trading at reasonable valuations and have the potential for outsized earnings growth.
Broad Market Revival and Earnings Upgrade Cycle
Addressing the significant underperformance of the Nifty 500 index compared to the Nifty 50 since late 2024, Madon sees a potential reversal. This underperformance, which stands at nearly 10%, has increased the relative attractiveness of the wider market. Backed by supportive monetary and fiscal policies, he anticipates a broad-based earnings revival in India over the next few quarters, which could help the Nifty 500 reverse its trend of underperformance in the coming year.
On the upcoming earnings season, Madon was optimistic. He strongly believes that the earnings downgrade cycle in India is likely over, and the economy is transitioning into an earnings upgrade phase. Robust agricultural output, subdued inflation, solid balance sheets in the corporate and financial sectors, favourable monetary conditions, and continued reforms are expected to boost the earnings growth trajectory. On the external front, he expects service exports to remain strong, though merchandise exports may face some headwinds.
Interest Rate Trajectory: RBI and Fed Policy Impact
Regarding domestic monetary policy, Madon noted that from February to December 2025, the RBI cumulatively reduced the repo rate by 125 basis points, bringing it down from 6.50% to 5.25%. This aggressive easing was possible as India's retail inflation eased to multi-year lows, with the Consumer Price Index (CPI) falling below 2% in 2025, well under the central bank's target range.
This low-inflation environment provides the RBI with flexibility to lower rates to encourage growth and boost economic activity. However, Madon cautioned that while policy will remain supportive, the RBI's future decisions will be influenced by the global monetary environment. Considering trends in US and Japanese bond yields and the recent depreciation of the rupee, he suggested that the bulk of the rate-cutting cycle may already be behind us.
On the US Federal Reserve, Madon observed that it has cut interest rates three times this year, bringing the target range to 3.5%-3.75%. With unemployment and inflation rising against a backdrop of new tariffs, and the Fed Chair acknowledging peak tariff impacts in Q1 2026, the current outlook is neutral to slightly hawkish. The Fed projects only one rate cut each in 2026 and 2027.
These Fed rate cuts are likely to enhance capital flows into emerging markets like India by improving their relative attractiveness for foreign investors, which could, in turn, provide some support to the Indian rupee. The Fed's moves also give the RBI additional room to ease its own monetary policy to support domestic growth while maintaining a neutral stance.
