Indian equity markets could be headed for an exciting phase in 2026, with earnings growth expected to rebound to double-digit levels by FY27, according to Nilesh Shah, Managing Director at Kotak Mahindra Asset Management Company. Shah believes improving fundamentals and a supportive global backdrop could revive investor confidence after a period of consolidation.
FII Flows Likely to Return in 2026
Nilesh Shah said foreign institutional investor (FII) flows are likely to return to Indian markets in 2026, driven by easing global interest rate cycles, slowing US economic growth, and growing scepticism around overvalued artificial intelligence-led trades in global markets.
As global investors look to diversify away from crowded tech-heavy trades, India’s relatively stable earnings outlook and domestic growth story could once again attract overseas capital.
Earnings Recovery Key for Market Upside
According to Shah, the key catalyst for the next leg of market gains will be a revival in corporate earnings, with growth expected to move back into the double-digit zone by FY27. A recovery in earnings momentum would support valuations and improve market breadth beyond a narrow set of stocks.
Outlook for Indian Markets
With inflation moderating, global rate pressures easing, and India’s long-term growth drivers intact, Shah remains constructive on Indian equities over the medium term. He expects better balance between valuations, earnings growth, and liquidity to define market performance in 2026.
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