Markets poised for revival in H2FY26 on policy boost, global reliefs

These milestones, coupled with ongoing domestic measures, are expected to create a favorable macroeconomic backdrop, a Motilal Oswal report said

After a year of muted performance, the Indian equity market is poised for a sentiment shift in the second half of 2025. Analysts believe a series of recent policy and global developments could provide the much-needed spark for a recovery.

The most significant trigger came from the Prime Minister Narendra Modi's Independence Day address, where he announced second-generation GST reforms aimed at lowering the indirect tax burden on households and boosting consumption. Adding to the optimism, S&P upgraded India’s sovereign credit rating to investment grade—raising it from BBB- to BBB—for the first time in 18 years, marking the highest rating in 35 years.

Another notable development was the suspension of the 25 percent punitive tariffs on Indian exports to the US, following progress in US-Russia negotiations, though the reciprocal 25 percent duty imposed by India remains in place.

“While the US tariff scenario remains fluid, India’s exports should remain competitive, as the ex-punitive tariff rate of 25 percent is still lower than that faced by several other countries,” Motilal Oswal Securities observed in its latest report.

These milestones, coupled with ongoing domestic measures, are expected to create a favorable macroeconomic backdrop in the second half of FY26, Motilal Oswal report added.

Both the Reserve Bank of India (RBI) and the government have been frontloading growth-supportive actions over the past few quarters. Since the third quarter of FY25, the RBI has injected liquidity exceeding Rs 10 trillion through open market operations and forex swaps, while cutting the repo rate and cash reserve ratio by 100 basis points and 150 basis points, respectively.

This has already led to adjustments in banks’ external benchmark-linked rates, with marginal cost of funds-based lending rates likely to follow, it said.

On the fiscal side, the government’s Rs 1 trillion stimulus—primarily via income tax concessions—combined with the anticipated benefits of GST reform, is expected to lift household spending. A normal monsoon covering 74 percent of districts, multi-year highs in real rural wage growth, festive season demand, and a favorable base effect are additional growth levers, the report said.

Despite benchmark indices remaining largely flat on a year-on-year basis and underperforming global peers in calendar year 2025 to date, valuations remain reasonable. Nifty is trading at 20.8 times its one-year forward earnings—closely aligned with its 10-year average.

With earnings momentum expected to improve, Motilal Oswal forecasts FY26 profit growth of 9.8 percent for the Nifty and 12.1 percent for its broader coverage universe.The report maintain that the confluence of these policy measures, global reliefs, and domestic growth triggers could restore foreign investor confidence and set the stage for a meaningful market upturn in 2HFY26.