Market outlook for 2026 moves from narratives to execution: Chockalingam Narayanan

markets

• Markets to see normalised returns in 2026 after strong gains
• Foreign investor participation in India has reduced recently
• Opportunities in cyclical, defensive, and financial sectors

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Markets are likely to move into a phase of normalised returns in 2026 after the strong gains seen between 2020 and 2024, Chockalingam Narayanan, Head – Equities, PMS & AIF (Long Only), ICICI Prudential AMC, said.

Speaking at the Crystal Gazing Summit organised by Wealth Services Firm, PMS AIF WORLD, on the outlook for 2026, Narayanan said India remained largely flattish in dollar terms in 2025 even as several global markets delivered strong performance driven by artificial intelligence-led rallies. Markets such as Korea and Taiwan were beneficiaries of AI-led growth with a narrow set of companies dominating index performance, while markets like Brazil benefited from their role as commodity suppliers within the value chain.

He said moderate returns in India over the past 18 months resulted in foreign investors turning underweight on India within emerging market allocations, as global capital moved towards markets that had delivered stronger returns.

Corporate Profit Normalisation

Narayanan said corporate profit as a share of GDP has returned to peak levels and normalised. He said this has mirrored global interest rate trends, with higher interest rates leading to greater discipline in capital allocation.

He said the market can broadly be divided into three segments — cyclical and capital-intensive businesses, defensives and financials. Cyclical sectors, which had seen pressure earlier, have seen profitability improve post-Covid, while financials have also strengthened. Defensive sectors remained steady but saw valuation expansion between 2010 and 2020.

He said the current phase offers opportunities across all three segments rather than being limited to defensives as seen earlier.

Growth Trends Across Cycles

Narayanan said between 2010 and 2015 nominal GDP grew by around 14.5 percent, corporate profits by around 6 percent and market capitalisation by about 12 percent. Between 2015 and 2020, GDP grew by about 10 percent, while corporate profits grew at around 1.1 percent CAGR and market capitalisation at around 2.9 percent CAGR.

Between 2020 and 2024, corporate profits rebounded by about 35 percent, and markets delivered similar returns in line with earnings growth. Between 2024 and 2026, profit growth has moderated to around 7.3 percent while GDP continues to grow at around 9 to 10 percent, indicating a phase of normalisation.

He said expectations should shift away from the outsized returns of the 2020 to 2024 period, with GDP expected to grow around 10 to 12 percent and earnings growth also likely to be in a similar range.

Macro Stability and Capex Revival

Narayanan said the working-age population continues to provide a long-term growth runway, while improving income distribution and rising affluence support demand.

He said fiscal consolidation has strengthened the government balance sheet, while services exports and diaspora inflows continue to support external stability.

Corporate revenues and profitability are improving, and private capital expenditure has picked up, growing at around 14 percent CAGR between FY19 and FY25 compared to about 5 percent between FY12 and FY19.

Framework agreements on trade deals with large markets such as the $ and the EU have been concluded, which could support Indian corporates.

Narayanan said the outlook for 2026 reflects a move from narratives to execution, with focus shifting towards companies that can deliver earnings growth through bottom-up opportunities.

MS AIF WORLD is India’s leading wealth services firm specialising in alternative investments, serving over 800 clients across ₹2,200 crore in PMS and AIF assets. The firm follows a knowledge-first philosophy with the belief that when knowledge leads, wealth follows, and it focuses on delivering well-informed investing for its alpha seeking clientele.