Global Wall Street giants including Morgan Stanley, Citi, and Goldman Sachs expect a strong rebound in Indian markets in 2026.
Indian markets lagged peers this year, with MSCI India trailing emerging market indexes by the widest margin since 1993.
Recovery signs emerging: corporate earnings improving, GDP growth at 8.2% in Q2 FY26, and expectations of further RBI rate cuts and liquidity support.
The Indian market is expected to rebound after a tough year of underperformance, the worst in decades, reports said. Morgan Stanley, Citigroup Inc., and Goldman Sachs Group Inc. are among those who expect the country’s market to recover as earnings stabilise and policy support begins to show impact.
Indian markets experienced continued foreign fund outflows across assets, with stocks lagging compared to other peers by the widest margin in over thirty years, a Bloomberg report said. The Indian rupee was also the worst-performing currency in Asia. Bonds remained under pressure from heavy government debt supply, along with investor sentiment turning jittery following the higher-than-expected 50% reciprocal tariff from the US.
31 October 2025
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MSCI Inc.’s India gauge rose 8.2% this year, trailing the broader emerging markets benchmark by the widest gap since 1993, the report said. Investors expect flows to shift back toward less tech-dependent EMs like India, as the AI rally starts to look uncertain. According to the Bloomberg report, ING Bank NV views the rupee as the regional currency with the most rebound potential.
However, early signs of recovery are emerging, reports said. Growth-supportive measures, coupled with a pause in the long stretch of earnings downgrades, are improving sentiment. “A rebound appears increasingly likely in 2026,” Bloomberg reported, citing Angela Lan, senior strategist at State Street Investment Management. “The earnings downgrade cycle is largely behind us, with recent policy measures, rate cuts and GST rationalisation, filtering through to consumption and credit.”
Indian Economy Remains Resilient
Despite the market underperformance, the Indian economy reported upbeat data in H1 of FY26, with the latest GDP print for the quarter ended September surpassing market expectations. Real GDP grew 8.2% in July–September. However, the International Monetary Fund has cut its projection for the nation’s growth next financial year to 6.2% from its earlier forecast of 6.4% due to US tariffs.
According to the report, corporate earnings also showed signs of recovery, with profits for the top 100 firms rising 12% in the last quarter. The benchmark NSE Nifty 50 Index briefly hit a record on November 20, surpassing its September 2024 peak.
RBI Support
The Reserve Bank of India has supported the Indian economy significantly by cutting policy rates by 100 basis points, intervening in the foreign exchange market to protect the rupee, and buying record amounts of government debt to ease liquidity pressures. With RBI Governor Sanjay Malhotra hinting at another rate cut at the next policy meeting from December 3–5, traders are looking for the central bank to revive large-scale bond purchases, Bloomberg reported.
