'Nazar aur Sabr': Stock markets in 2026 could epitomise this Dhurandhar dialogue; here's why

Market outlook for 2026

Investors can find inspiration for the correct trading strategy anywhere, only if one has the right eye. After delivering little to no returns in 2025, analysts made a few predictions on market movement in 2026, and  a famous dialogue from blockbuster movie Dhurandhar may perfectly describe what investor strategy ought to be.

Indian stock markets recorded sharp losses earlier this year, triggered by Donald Trump's tariffs, erasing the previous year's gains during the first half. Later, towards the end of the year, Sensex and Nifty soared to fresh lifetime highs, breaking previous year's records. The indices took around 14 months to return back to the levels seen during the previous year.

But the main question now is, what lies ahead? After decent returns in 2024 and muted gains in 2025, are the Indian benchmark indices heading towards a breakout or another year of consolidation in 2026?

'Nazar aur Sabr'

In the Aditya Dhar-directed spy drama, NSA Ajay Sanyal, played by R Madhavan, speaks about an interesting aspect of destiny to exhort his junior colleagues. "Kismat ki ek bahut khoobsurat aadat hai, ki woh waqt aane par badalti hai... Lekin filhal... Nazar aur sabr (Destiny has a beautiful habit – it changes when the time is right. But for now…keep your eyes open and have patience)," he says.

This philosophy in a way sums up what analysts advised investors to do during the upcoming year. According to them, only time will tell whether markets will have a breakout rally or a phase of consolidation. However, investors must keep their eyes open, and be patient.

This investment philosophy gains even more currency because the post-Covid euphoria in the stock markets has been on the wane and only the sharp-eyed and patient investors could make decent returns -- as long as their expectations are under check.

Market structure got stronger in 2025:

2025 was not an easy year for Indian capital markets. Performance lagged, global peers raced ahead, and investors were reminded that even strong stories go through uncomfortable phases. But it was also a year that quietly strengthened the system — growth held up, inflation eased, external balances were manageable and domestic savings kept faith with markets, said Pranav Haridasan, MD and CEO, Axis Securities.

"Below the headline numbers, the market structure actually got stronger. Primary markets stayed active, the listed universe widened, domestic institutions held steady, retail participation didn’t fade, and technology-driven investing became more mainstream. In many ways, the market became broader, deeper and a little more mature," he said.

Interesting inflection point:

After delivering broadly flat returns in 2025, Indian equities enter 2026 at an "interesting inflection point", said Naren Agarwal, CEO, Wealth1. "The past year was essentially a digestion phase—valuations corrected through time rather than price, leadership narrowed to large caps, and excess froth in mid and small caps was gradually wrung out. That consolidation was necessary after the sharp post-pandemic rally. Importantly, it happened alongside steady earnings growth, meaning valuation comfort has improved without a deep drawdown. As a result, markets are no longer pricing in perfection, which creates a healthier base going into 2026," he said.

Haridasan from Axis Securities noted that the outlook for 2026 is constructive, but with "both feet on the ground". "India’s growth engine, policy continuity, capex momentum and earnings visibility provide comfort. At the same time, geopolitics, slower global growth, potential unwinds in crowded trades like the AI risk trade, and shifting global yield dynamics — including developments in Japan — mean volatility will stay part of the journey," he said.

Breakout year or another phase of consolidation?

Whether 2026 becomes a breakout year or another phase of consolidation will hinge on earnings breadth and global liquidity, Agarwal said. A meaningful breakout would require earnings acceleration beyond a handful of sectors, supported by rate transmission, improving private capex and stable global conditions, he added.

"If US rates ease and risk appetite returns to emerging markets, India is well placed to attract incremental flows given its growth visibility and domestic demand strength. However, returns are likely to be more selective than index-led—stock picking will matter far more than beta," Agarwal said.

'2026 to reward patience and discipline'

According to the analyst, the base case for 2026 is not a runaway bull market, but a year where returns normalise, volatility remains episodic, and quality businesses compound steadily. "In that sense, 2026 may reward patience and discipline rather than momentum chasing," he said.

As we approach 2026, the likelihood of a prolonged consolidation period is relatively low, given that domestic growth fundamentals remain strong and inflation is cooling, said Siddharth Maurya, Founder & Managing Director at Vibhavangal Anukulakara.

Nevertheless, the subsequent stage of returns will probably be influenced by earnings and productivity increases rather than the expansion of multiples, he further said, adding that a sudden and strong move upwards might happen if the global situation gets better. However, the most probable scenario is a slow, fundamentally driven revival with the increased dispersion of sectors.

Haridasan said that 2026 begins with a simple reality: India remains one of the most compelling long-term stories, but this is a market that now demands discipline, diversification and respect for global risk. “A challenging 2025 may well have set the stage for a steadier and potentially mean-reverting year ahead,” he concluded.

Sensex rose more than 500 points (0.62 percent) on December 22 to 85,457.56, while Nifty 50 was up over 182 points (0.7 percent) at 26,148.55, as seen at 12.55 pm.

Market targets for 2026:

Indian equities may be poised for their strongest phase in years, with Morgan Stanley projecting the BSE Sensex could climb to 1,07,000 by December 2026 in its bull case, and 95,000 in its base case. The global brokerage said that after India’s sharp underperformance in 2025, the market is positioned for a broad recovery driven by macro tailwinds, policy easing and a renewed earnings cycle.

India is set to “regain its mojo” in 2026, shifting from a stock-picking market to a macro-driven trade, it said in an investors’ note. Foreign investors’ positioning is “the lightest in history,” relative valuations have normalised, and domestic fund flows remain structurally strong - a combination that offers the bedrock for a multi-year rebound in equities, Morgan Stanley added.

Nomura has struck a cautiously constructive tone on Indian equities for 2026, projecting a Nifty target of 29,300, supported by calmer geopolitics, resilient macro indicators and a cyclical earnings recovery. The brokerage said India’s valuation premium has now normalised after 14 months of underperformance versus global markets, offering a more reasonable entry point for long-term investors while laying the foundation for a broader rebound in equities.

Follow all LIVE updates from the stock markets here.