In a display of remarkable resilience, the Indian equity market has scripted history by posting a record tenth consecutive year of gains in 2025. The benchmark Nifty 50 index wrapped up the year with a solid 10.5% return, powered by a smart 6% surge in the final quarter, defying a host of significant challenges.
A Year of Volatility and Underperformance
The journey through 2025 was anything but smooth for investors. The market navigated a volatile landscape marked by multiple headwinds. Key among these were the absence of a trade deal with the United States, which has imposed the highest tariff rates in Asia on India at 50%. The year also witnessed a severe depreciation of the Indian rupee and massive selling by foreign portfolio investors (FPIs). This selloff was triggered by lofty market valuations and a noticeable slowdown in corporate earnings growth.
These combined pressures led the Nifty 50 to record its worst annual performance relative to other Asian markets in nearly three decades. A Bloomberg report highlighted that this underperformance was the index's most significant in the region since 1998.
Analysts Paint a Constructive Picture for 2026
Despite the turbulent year, experts see a silver lining for the future. Seshadri Sen, Head of Research and Strategy at Emkay Global Financial Services, noted that Indian equities have shown strong structural resilience. He stated, "Looking ahead, the outlook for the next year is constructive and expected to be meaningfully better than the current one, driven by a gradual revival in corporate earnings as the lagged impact of fiscal and monetary tightening fades."
This optimism is widely shared. Several analysts and global brokerages have set their sights on a Nifty 50 target range of 29,000 to 30,000 for 2026. This implies a potential upside of up to 15% from its closing level of 26,129.60 on December 31, 2025.
Drivers of the 2026 Rally: Earnings, FIIs, and Policy Impact
Santosh Meena, Head of Research at Swastika Investmart, holds a bullish outlook, projecting a Nifty target of 30,000. He anticipates a revival in the broader market and a reversal in FII selling. "In 2025, Indian equities underperformed as global capital aggressively chased the 'AI trade' in the US, leading to heavy FII selling. As the AI frenzy cools and valuations in India become attractive relative to global peers, we expect a reversal," Meena explained. He added that a stable currency and comfortable valuations could trigger robust FII inflows in 2026.
Meena also expects the positive impact of various government policy initiatives to materialize. These include income tax rationalization, GST cuts, and the RBI's rate cuts and liquidity measures. 2026 could see the delayed positive effect of these policies finally reflecting in asset prices.
Vaqarjaved Khan, Senior Fundamental Analyst at Angel One, envisions a more realistic Nifty target of 28,500–30,000, implying 10–15% returns. He believes this growth will be largely driven by earnings recovery in specific sectors rather than mere expansion in price-to-earnings multiples. "The rally is likely to be driven by earnings growth in sectors such as banking, telecom, autos, healthcare, and defence," Khan said.
Cautious Optimism and Broader Participation
Analysts caution that the expected rally may not follow a straight line upward and will likely include phases of consolidation. Emkay Global's Seshadri Sen sees a Nifty target of around 29,000 over the next 12 months, suggesting a low double-digit upside. He advises that any meaningful market correction should be viewed as a buying opportunity, supported by improving earnings visibility in the second half of the year and a stable macroeconomic backdrop.
A key differentiator for 2026, according to Santosh Meena, will be inclusivity. Unlike 2025, the rally is expected to lift the broader mid-cap and small-cap indices alongside the Nifty and Sensex. However, risks remain. Global uncertainties, including potential US tariffs, slowing global growth, and evolving US Federal Reserve policy, could pose challenges to the sustained upward movement.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms. Investors are advised to consult with certified experts before making any investment decisions, as market conditions can change rapidly.
