Synopsis

The December 2025 India Investment Strategy report presents a cautiously constructive outlook for Indian markets amid a stable but uneven global growth environment. Globally, growth is expected to remain subdued in CY26, with US resilience offset by slowing momentum in China and a weak Eurozone. While risks from AI-led valuation excesses, global bond yield spikes and geopolitical uncertainties persist, easing interest rates and reduced trade-policy volatility provide near-term support

India’s growth outlook has strengthened meaningfully, supported by proactive fiscal measures, easing monetary conditions, and sustained government capex. FY26 GDP growth has been revised upward to ~6.5–6.7%, with consumption showing early signs of revival aided by GST cuts, lower lending rates and festive demand. Inflation has fallen sharply—well below the RBI’s target band—creating room for a sustained rate-cut cycle, with monetary policy expected to take over as the primary growth driver

Corporate earnings appear to be at an inflection point. While large-cap earnings remain muted, broader markets are leading upgrades, and profit pools are rotating toward metals, oil & gas, and select cyclicals. Valuations remain elevated—particularly in small caps—making this a stock-picker’s market rather than one driven by broad valuation expansion. Domestic liquidity continues to anchor markets as mutual fund flows stay resilient, even as FII flows turn intermittent and sensitive to global risk sentiment and US–India trade negotiations

From a portfolio perspective, the report recommends maintaining a constructive but selective equity stance, aligning return expectations with earnings growth. Emphasis is placed on multicap strategies, bottom-up stock selection, selective sector rotation, and quality leadership businesses across market caps. In fixed income, easing inflation and potential index inclusion support duration selectively, while global risks warrant caution. Overall, the strategy underscores disciplined allocation, diversification, and active management as key to navigating 2026’s evolving macro and market landscape