The Indian equity markets have kicked off the new year on a robust note, with benchmark indices climbing to record levels amid optimism surrounding corporate earnings and government policy. On the second trading day of 2026, the Nifty 50 scaled a fresh peak, signaling positive investor sentiment for the year ahead.
Markets Scale New Peaks
On Friday, the Nifty 50 settled at a record high of 26,328.55, marking a gain of 0.7%. The Sensex followed suit, ending 0.7% higher at 85,762.01. This placed it just a whisker away from its own all-time closing high of 85,836.12, which was achieved on 26 September last year.
The rally was primarily fueled by strong performances from heavyweight stocks such as HDFC Bank, ICICI Bank, and Reliance Industries. Key sectors including financial services, oil and gas, and information technology provided significant momentum. Reflecting the strength in banking stocks, the Bank Nifty index also registered a record closing level of 60,150.95.
Earnings Visibility to Drive 2026, Say Experts
Market experts believe that the narrative for 2026 will shift from broad themes to concrete financial performance. Kalpen Parekh, MD and CEO of DSP Mutual Fund, emphasized that sector outcomes are likely to be driven by earnings visibility rather than narratives.
He highlighted that domestic investment and manufacturing-linked segments like capital goods, select industrials, and engineering businesses continue to show promise. This optimism is backed by multi-year order books and sustained public capital expenditure. Parekh also reaffirmed that financials remain a core holding for investment portfolios.
However, he issued a note of caution for sectors more exposed to global economic cycles or commodity price volatility, which could face pressure if demand weakens.
Sunil Singhania, Founder of Abakkus Asset Manager, added to the positive outlook. He told Mint that the upcoming Union budget appears to be growth-oriented. Furthermore, the positive impact of the GST reduction seen in October-November might reflect in December quarter corporate results, providing an additional tailwind for the markets.
Can India Outperform Its Peers in 2026?
The Indian market's performance in 2025 was relatively modest compared to its Asian counterparts. While the Nifty 50 delivered a 12% return, indices in South Korea, Japan, Hong Kong, and Taiwan surged between 28% and 79%.
Aniruddha Sarkar, Co-founder and CIO of Equinova Investment Managers, believes this trend could reverse in 2026. "From being in the bottom decile in 2025, we could see India being in the top quartile in 2026," Sarkar stated. He attributed last year's underperformance to global capital chasing the artificial intelligence theme in other emerging markets. A potential cooling of that momentum could redirect funds towards India, which is more reliant on domestic consumption and capex.
Sarkar also pointed to the potential India-US trade deal as a major catalyst, calling it a question of "when" rather than "if." He expressed confidence that even if foreign inflows remain subdued, strong domestic flows are sufficient to keep the market advancing.
A Note of Caution Amid the Rally
Despite the bullish start, some analysts advise vigilance. A report by Elara Capital dated 19 December highlighted that global investors have been pouring money into emerging markets in a highly correlated manner since May 2025. Historically, such peaks in correlation have been followed by meaningful corrections in emerging markets.
Global brokerage Bernstein struck a similarly cautious tone in its 2 January report. While acknowledging potential positives like a tentative trade deal and a slight return of private capex, Bernstein trimmed its stance on India to neutral. The brokerage believes these factors may not provide enough momentum to sustain the market at the elevated levels investors have grown accustomed to, suggesting 2026 might be a "quieter" year for the India story.
In conclusion, the Indian stock market begins 2026 with record-breaking momentum, powered by earnings optimism and domestic strengths. However, investors are advised to monitor global liquidity flows, earnings breadth, and valuations closely as the year unfolds.
