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Informist, Friday, Jan. 2, 2026

By Arundathi AR

MUMBAI – Benchmark equity indices are likely to hold its positive momentum in the near term on expectation of an improvement in corporate earnings for the December quarter. Analysts expect returns will be better in 2026 but a lot will depend on the flow of foreign investments.

"Focus will be on small and mid-cap earnings as that segment has underperformed in 2025," said Naveen Kulkarni, chief investment officer at Axis Securities. He sees corporate earnings to grow in the early double digits to teens.

Kulkarni expects returns from the Nifty 50 in 2026 to be similar to that in 2025 but improvement in foreign investment flows could help returns exceed the corporate earnings growth. He also expects persistent selling by foreign investors to limit the upside potential in the near term. 

"In 2026, investors can expect 12% to 15% returns from the market," said V.K. Vijayakumar, chief investment strategist at Geojit Investments. He expects weakening of the artificial intelligence trade, which dominated global stock markets in 2025, to turn foreign investors into buyers of non-AI stocks from emerging markets like India.

On Friday, the Nifty 50 index closed higher for the third straight session. The Nifty 50 settled at 26328.55 points, up 182 points or 0.7%. The BSE Sensex closed at 85762.01 points, up 573.41 points or 0.7%. Analysts pegged the resistance level for Nifty 50 at 26500-26600 and support at 26100.

The information technology sector is likely to see a muted earnings growth in the December quarter due to seasonality, according to Prabhudas Lilladher. "The weakness in demand also tends to defer compensation revision for most of the names in Q3 (Oct-Dec)," the brokerage said in a report. "The margin improvement would be flat to marginally positive, partly aided by INR (Indian rupee) depreciation," it said. Prabhudas Lilladher expects median revenue growth of 1% on quarter in constant currency terms and 0.8% sequentially in dollar terms.

"On margins, we expect pressure across both Tier I and Tier II companies, driven by furloughs, with Tier II likely to see a sharper contraction due to wage hikes in select players," Prabhudas Lilladher said in the report about IT sector. According to the brokerage, median earnings before interest and tax margins are likely to fall by 40 basis points for Tier I companies, while Tier II companies are expected to see a sharp margin contraction of around 70 bps.

Record levels of capital expenditures, especially in artificial intelligence-related stocks, are expected to provide support for technology and related sectors in 2026, IDBI Capital said in its report. The brokerage maintains a constructive stance on equities in favour of commodity-related stocks.

Goods and services tax reforms and improved rural sentiment sustained the automobile industry momentum, analysts said, tracking the December sales data. "The positive impact of the GST cuts is being reflected in industries like automobiles," said Vijayakumar of Geojit. "The 25.8% increase in passenger vehicle sales in December is impressive," he said.

ITC is likely to face challenges in FY27 in passing on the steep hike in excise duty, which will impact volume growth and dent earnings over the medium term, analysts said. 

On trade deal between India and the US, analysts said a further delay will remain an overhang on the rupee and the possibility of the rupee weakening further is likely. Market participants await the first advance estimate of GDP for 2025–26 (Apr-Mar) from the National Statistics Office, scheduled for release on Wednesday.  End

Edited by Akul Nishant Akhoury

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