Indian equities seen scaling fresh highs by mid-2026 as domestic money trumps foreign outflows

Indian equity markets are expected to climb to fresh record highs by mid-2026 and extend gains through the following year, as powerful domestic institutional inflows continue to offset foreign investor withdrawals, according to a Reuters poll and outlook reports by major financial institutions.

The benchmark Nifty 50 is forecast to rise about 5% to 27,200 by June 2026, before reaching 28,500 by the end of the year and 28,850 by mid-2027, a Reuters survey of 25 equity analysts showed. The BSE Sensex is expected to climb to 89,430 by mid-2026, 92,400 by end-2026, and 95,000 by mid-2027. These projections mark an upgrade from the previous quarterly poll and come after Indian equities posted near-zero returns since late 2024, even as global markets rallied.

The renewed optimism comes despite the largest-ever annual foreign portfolio outflow from Indian equities. Overseas investors have pulled nearly $17 billion so far this year, pressured by slowing nominal GDP growth, elevated valuations, and steep U.S. tariffs of up to 50% on Indian goods, which caused Indian stocks to lag broader emerging market indices for the first time in five years.

Yet domestic institutional investors (DIIs) have emerged as the market’s decisive stabiliser. Local funds poured in around $77 billion during the year, providing what analysts describe as a structural backstop to Indian equities.

Domestic strength offsets global headwinds

Axis Mutual Fund, in its Annual Equity Outlook 2026, described India as entering the new year with a “constructive growth narrative” anchored by policy support, macro stability, and a broad-based recovery in demand. The fund house expects nominal growth to accelerate, driven by consumption, infrastructure spending, and easing financial conditions following the Reserve Bank of India’s accommodative stance in 2025.

Lower taxes, benign inflation, and ample liquidity have created what Axis termed a “Goldilocks environment”; strong growth without inflationary stress is prompting upward revisions to growth forecasts. Fiscal consolidation, stable oil prices, and resilient domestic demand are expected to underpin macroeconomic stability, even as global growth remains uneven.

Consumption is seen as a key pillar, supported by rural recovery, premiumisation trends and fiscal spending by state governments. Infrastructure-led capital expenditure spanning energy, defence, semiconductors, data centres and electronics manufacturing is also expected to remain a major growth driver.

Standard Chartered’s global outlook similarly points to India as one of the most resilient large economies in a fragmented global trade environment, benefiting from domestic demand depth, improving supply-side reforms, and a relatively insulated financial system.

Despite the upbeat outlook, risks persist. Corporate earnings growth has remained stuck in the mid-single digits for several quarters, fuelling concerns over stretched valuations. The Sensex currently trades at around 25 times forward earnings, among the highest globally and close to U.S. market multiples.

Tariffs remain a significant overhang. Elevated U.S. duties have constrained India’s export upside and delayed anticipated gains from global supply chain diversification. Axis noted that any resolution of trade frictions between India and the U.S. could meaningfully lift exporter sentiment and earnings momentum, particularly as rupee depreciation has already improved price competitiveness.
Still, nearly three-quarters of analysts surveyed by Reuters said a sharp correction defined as a fall of 10% or more, was unlikely, citing the depth of domestic liquidity and the absence of major macro imbalances.

While foreign flows may remain cautious amid global uncertainty, analysts increasingly view India’s equity cycle as domestically driven, less dependent on overseas capital than in previous decades.

With valuations moderating, earnings expected to recover into mid-teens growth over the next two years, and policy support firmly in place, Indian equities are seen entering a phase of steadier, more internally anchored gains.

As Axis Mutual Fund summed up its outlook for 2026: Indian markets are likely to reflect “recovery and resilience” powered not by global exuberance, but by the growing weight of domestic capital and confidence.