Indian stock market: The year 2025 proved to be a policy-driven and volatile year for global markets, shaped by tariff-related disruptions, shifting interest rate expectations, and heightened geopolitical risks.
Global markets delivered strong returns in 2025, supported by an AI-driven rally, valuation re-rating and local policy support. Markets such as South Korea, Brazil and Japan gained the most. China, the US (S&P 500) and Europe also delivered higher double-digit returns.
However, the Indian stock market underperformed global peers in 2025. Large and Mid caps were relatively resilient, while small caps corrected meaningfully, reflecting valuation normalisation and earnings downgrades.
In 2025, the Nifty 50 posted gains of around 10%, while the Sensex rose by about 8%.
Market Outlook in 2026
Market experts believe that 2026 is likely to remain a selective market. Global conditions will continue to be shaped by interest rate expectations, trade developments, and geopolitical risks.
“In India, earnings growth, domestic liquidity, and progress in private-sector capital expenditure will be key variables to watch. The market environment is likely to favour companies with strong balance sheets, predictable cash flows, and disciplined capital allocation. In that context, the correction and consolidation seen in parts of 2025 may prove constructive, setting the stage for more sustainable returns rather than broad-based rallies,” said Nikhil Khandelwal, MD, Systematix Group.
Top factors that will drive Indian stock market in 2026
According to brokerage firm Geojit Research, these are the top five factors which are likely to drive the Indian stock market this year.
GDP growth
According to the brokerage firm, India is expected to record steady GDP growth over the coming year, underpinned by resilient domestic demand and a benign inflation environment.
Inflation is expected to edge higher during 2026 and remain within the RBI’s target range, supported by subdued oil prices and adequate food stocks.
Income tax cuts, GST rationalization and the upcoming 8th Pay Commission will boost household disposable incomes, spur consumption and stimulate demand.
External Headwinds
Ongoing geopolitical tensions and a tariff-heavy trade backdrop continue to keep a safety premium embedded in gold. Global economic activity has seen moderation, including major economies like the US and China, the firm said in a report titled ‘ 2026: A better year for Indian stock market’.
U.S. tariffs have depressed output, particularly in manufacturing intensive nations, and triggered supply chain reallocations, hurting both U.S. and global growth.
Mexico’s 50% tariff on Indian imports adds a new layer of trade complexity. Further, trade war has led to the blocking of critical minerals by China, which is adding further strain to the global supply chain.
AI’s exponential rise
AI adoption is accelerating across major industries, including technology, financial services, and healthcare, driving rapid deployment of AI-centric technologies and strengthening their commercial relevance across enterprise operations.
With expanding use-cases, rising enterprise adoption, and strong earnings visibility for the industry, AI’s long-term fundamentals remain robust, supporting the next phase of growth even as markets stay alert to bubble-like narratives.
Liquidity boost and economic strength
The RBI adopted an accommodative policy in 2025, executing a total of 125 bps repo rate cuts, reducing the policy rate to 5.25%.
“Given the subdued inflation outlook, we can expect a further cut in 2026, based on data. India’s financial liquidity has improved after RBI’s cut in CRR by 100 bps and open market operations, upgrading the outlook for banks,” the brokerage firm said in the report.
Positive Earnings
The earnings downgrade phase seems to be mostly over. A series of government initiatives is expected to help realign the corporate earnings outlook as domestic reforms continue, while any resolution to the tariff impasse could serve as a major external trigger for the markets.
Nifty50 is currently hovering near to our 2025 December base case target of 26,500, aided by strong domestic fundamentals and receding global risk factors.
“We marginally upgrade our base target for December 2026 to 29,150, suggesting a return of 12% YoY. Return may largely be attributed to a pick-up in private capex, recovery in the earnings cycle and moderation in global risk factors,” the firm added.
Disclaimer: This story is for educational purposes only. Please consult with an investment advisor before making any investment decisions.