Synopsis

Anchored by the Keynesian principle of updating one's views as facts evolve, Spark Capital PWM's February 2026 India Investment Strategy presents a cautiously constructive outlook for Indian markets, shaped by a firming domestic growth picture, a landmark budget, and a pivotal shift in external sentiment.

Global Backdrop. Global growth is expected to remain stable through CY26–27, but at below-trend levels with pronounced regional divergence. The US remains the anchor, supported by fiscal stimulus and AI/IT-led investment, with S&P 500 EPS growth projected at ~15% in CY26. China's growth, while positive, is unsustainably export-dependent, with domestic demand and investment continuing to slow. The Eurozone shows early cyclical improvement led by Germany's fiscal expansion. Structurally, global long-bond yields are headed higher, the US dollar has weakened to multi-year lows, and policy divergence across central banks is intensifying financial market volatility.

India — Growth Firming, Policy-Led. India's FY27 GDP growth forecasts are converging in the mid-6% range, with nominal GDP expected at ~10.5–11%. High-frequency indicators — retail sales, auto volumes, e-way bills, power demand — are broadly positive. Public sector capex rebounded sharply in Q3-FY26 (+26.5% QoQ), though private capex recovery remains deferred. The closure of the US-India trade deal has been a meaningful sentiment positive, with early estimates suggesting a ~20 bps uplift to FY27 GDP growth. The EU-India FTA provides further medium-term export tailwinds, particularly for textiles, autos, and chemicals.

Union Budget FY27 — Reflationary and Credible. The FY27 Union Budget is assessed as growth-oriented with calibrated fiscal discipline. The fiscal deficit is compressed by only 5 bps to 4.31% of GDP — the smallest consolidation since the pandemic — with public capex budgeted to grow 11.5%. Revenue assumptions are conservative and credible. Key focus areas include defence, railways, roads, data centres, MSMEs, and rural welfare. The sharp rise in gross borrowings (INR 17.2tn vs INR 14.6tn in FY26) is the primary market concern, with RBI OMO support expected to be critical.

Rates & Liquidity. The RBI's rate-cutting cycle is approaching its terminal phase, with one last cut expected by FY26/early FY27. The stabilisation of the INR, aided by the US-India trade deal, has reduced the urgency of an immediate repo cut. System liquidity remains tight but is expected to ease post fiscal year-end. G-sec yields at the long end are likely to remain under pressure given elevated supply, while short-to-medium-term yields could ease modestly as liquidity conditions improve.

Valuations & Earnings. Nifty FY27 EPS growth is projected at ~16.5%, led by Oil & Gas, NBFCs, Metals, and Telecom. Early Q3-FY26 results show adj. PAT growth of ~12.6% YoY across ~263 top-500 companies. Large-caps trade at 5-year average valuations; mid-caps slightly below; small-caps remain elevated at +1SD. The environment remains firmly a stock-picker's market — alpha will come from fundamentals and earnings visibility, not multiple expansion.

Capital Flows & Sentiment. FIIs sold ~USD 4.5bn in January 2026, taking their Nifty ownership to an 18% — a 13-year low. Multiple overhangs drove the selling: US-India trade uncertainty, geopolitical risk, and early Q3 earnings disappointment. Domestic SIP flows (~INR 30k cr) remain a steady anchor, though gold ETF inflows have surged as return fatigue sets in on equities. Market sentiment has reversed sharply following the trade deal. Beneath stable headline indices, the median SMID stock is down ~25% from highs, creating selective bottom-fishing opportunities.

Portfolio Strategy. On equities, the report recommends active, large-cap-biased multicap strategies, with sector rotation between Compounders/Anchors and Cyclicals at the core. EM equities are favoured as a diversification tool given attractive earnings growth and reasonable valuations. On fixed income, accrual strategies in the short-to-medium segment are preferred, with REITs/InvITs for income and selective performing credit exposure. Gold retains its strategic allocation case given lower real rates, sustained central bank buying, and elevated geopolitical uncertainty.