MC Markets Poll: Indian equities likely to outperform global peers in 2026; FII flows may stabilise after extended sell-off

Indian equity benchmarks witnessed a steep fall on Thursday, with Nifty50 declining 264 points to close at 25,877 (-1%), as investors grappled with concerns over potential US tariffs, continued FII selling and weak global cues.

• 57% of experts predict Indian equities will outperform globally by 2026.
• FIIs likely to remain net sellers, but earnings growth may reverse flows
• US Fed rate cuts and stable rupee boost Indian equities' appeal

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Indian equities are expected to outperform global markets in 2026, even as investors remain cautious about foreign portfolio inflows, according to a Moneycontrol poll of 50 industry experts across mutual funds, PMS, AIFs, and broking firms.

About 57 percent of respondents expect Indian equities to beat global peers next year, reflecting confidence in domestic growth and an improving earnings outlook. Around 25 percent believe global markets could outperform, while 18 percent remain undecided. In 2025, the MSCI India index delivered just around 2.2 percent total return in US dollar terms, significantly lagging the nearly 30 percent rise in the broader MSCI Emerging Markets index and strong gains across Asian peers.

The FII story

That optimism on relative equity performance coexists with caution on foreign investor behaviour. Nearly 68 percent of respondents expect foreign institutional investors (FIIs) to remain net sellers in 2026, extending a trend observed over the past year. In 2025, FIIs net sold around Rs 1.66 lakh crore in Indian equities, reducing exposure sharply to IT, FMCG, and power stocks while selectively adding to telecom, oil and gas, and services, suggesting sector rotation driven by valuation and earnings concerns rather than a broad-based exit.

Supportive global set-up 

Several market participants point to macro factors that could support a recovery in foreign flows. Nearly 63 percent of respondents expect the US Federal Reserve to cut rates twice in 2026, while 33 percent foresee a single cut. According to Vikas Gupta, founder and chief investment strategist at Omniscience Capital, the Fed is likely to be slightly more divided under a new chair, resulting in 2–3 rate cuts, which will drive the global search for higher returns. Gupta highlighted that among large emerging markets or any trillion-dollar-plus economy and stock market, India stands out, offering high real GDP growth and nearly 500 companies with market capitalisation of $500 million or more, combined with high latent liquidity due to a large domestic investor base.

Rupee, not a worry

Expectations for the rupee suggest limited pressure, with 57 percent of experts projecting a depreciation of 0–3 percent and another 35 percent seeing a 3–4 percent decline, helping reduce currency risk for foreign investors and supporting the relative attractiveness of Indian equities. SBI Securities’ Sunny Agrawal noted that the USD INR had stabilised post-hitting recent lows of 91 but added that any significant further delay in the India-US trade deal or increase in geopolitical tension could lead to temporary pressure on USD INR.

Earnings growth, a key driver

Optimism on earnings is one of the key drivers for possible reversal of FII flows in CY2026. Agrawal suggests that FII flows are likely to recover on the back of double-digit earnings growth coupled with relatively comfortable valuations after nearly 15 months of consolidation. Jefferies in a recent note suggested that corporate earnings growth is expected to accelerate sharply in 2026, with MSCI India EPS projected to rise from around 8–9 percent in FY25/26 to 13–14 percent in FY26/27, driven by banks, autos, and power sectors. The brokerage also highlights that persistent domestic inflows from mutual funds, SIPs, insurers, provident funds, AIFs, and direct equity—averaging $7–$8 billion per month can cushion markets against net foreign selling, providing additional support.

Gupta also pointed out that headline valuation multiples currently still look pricey, but when accounting for the fact that earnings growth has bottomed out in FY26, the normalised P/E is reasonable, given expected long-term double-digit earnings growth in USD terms, even after factoring in INR depreciation. He noted that the RBI is likely to deliver rate cuts given low inflation and very high real interest rates, while government policies are expected to continue supporting growth, exports, and FDI.

AI, trade deal etc

AI reversal trends and India-US trade deals could also be major drivers. In a recent conversation with Moneycontrol, Axis MF’s Head of Equity Shreyash Devalkar noted that the global AI trade has disproportionately benefited US markets, leaving India relatively under-owned. “Even a partial unwinding of the AI-led trade could redirect flows towards markets like India that underperformed during that phase,” he said. Agrawal concurred. He added, “A reversal of flows from global AI stories in developed markets towards emerging markets including India, a likely US-India tariff deal over the next 2–3 months, strong macro fundamentals, and decadal-low foreign ownership in Indian equities could further support inflows.”

Devalkar also noted that rupee depreciation has improved the relative attractiveness of Indian assets, while a move in nominal GDP growth closer to double digits would significantly enhance earnings visibility.

The overall story

Gupta added that the probability of FII flows reverting is rising as the global rate cycle turns. He noted that India’s deep equity universe, high real GDP growth, domestic liquidity, and supportive policy environment make it particularly resilient among large emerging markets.

Overall, the poll suggests market experts remain constructive on Indian equities in 2026, betting on relative outperformance driven by domestic growth and improving earnings visibility, even as foreign inflows remain a key variable to watch. While FIIs are currently expected to remain cautious, improving earnings, valuations, domestic inflows, and supportive macro and policy conditions could encourage a return of foreign capital.