The Indian stock market's trajectory in 2026 is expected to be shaped by a confluence of factors, both domestic and global. While 2025 saw the Indian market underperform compared to its global peers, 2026 is poised for a potential rebound, driven by robust economic growth, increasing corporate earnings, and strategic policy implementations. Here are five key factors expected to influence the Indian stock market in 2026:

1. GDP Growth:

India is projected to maintain a strong GDP growth rate in 2026, underpinned by resilient domestic demand and a stable inflation environment. Various institutions have offered optimistic forecasts:

• Bank of America (BofA) revised India's FY26 GDP growth estimate upwards to 7.6% from 7%, citing stronger consumption and supportive government policies.
• Goldman Sachs predicts India's RGDP growth will reach 6.7% in 2026 and 6.8% in 2027, surpassing the global average.
• The Reserve Bank of India (RBI) has also revised its FY26 economic growth estimate to 7.3%.
• ICRA expects GDP growth to accelerate to 7.4% in FY26 from 6.5% in FY25.

This sustained economic expansion is expected to fuel corporate earnings growth and boost investor confidence.

2. Corporate Earnings:

A revival in corporate earnings is a crucial factor for the Indian stock market in 2026. After a period of muted earnings growth, experts anticipate a significant improvement. Indian companies are expected to deliver earnings growth in line with the nominal GDP growth of 10-11%. Motilal Oswal believes that any pickup in earnings growth could drive a rerating of the market. Sectors linked to domestic investment and manufacturing, such as capital goods, industrials, and engineering firms, are expected to show promise due to strong order books and public capital expenditure.

3. Government Policies and Reforms:

Policy changes and reforms implemented in 2025, including GST reforms, income tax changes, and interest rate reductions, are expected to have a visible impact in 2026. The government's continued focus on infrastructure development and increased public spending will also support economic growth. The government has ensured a frontloading of its capital expenditure in the first seven months of 2025-26 with a growth of 32.4%. Recent free trade agreements with the UK, Oman, and New Zealand are expected to further boost exports.

4. Artificial Intelligence (AI):

The increasing adoption of AI across various sectors is expected to drive economic growth and improve productivity. AI could add $1.7 trillion to India's economy by 2035, with adoption across sectors like healthcare, agriculture, manufacturing, financial services, and education. India's AI ecosystem is evolving rapidly, with increasing numbers of AI-related patents being filed and AI being integrated into various industries. The government is also promoting AI through initiatives like the IndiaAI mission and centers of excellence for AI.

5. Foreign Institutional Investment (FII) Flows:

After being net sellers in 2025, FIIs are expected to return to the Indian market in 2026. Declining rupee against US dollar has fueled the possibility that FIIs will be returning in 2026. A potential outflow of global investor capital from US assets and a moderation of the AI trade abroad could also redirect attention to Indian equities.

Additional factors:

• Global cues: Global equity market trends, bond yield movements, currency fluctuations, and commodity price stability will continue to influence the Indian market.
• Domestic liquidity: Domestic liquidity and progress in private-sector capital expenditure will be key variables to watch.
• Market sentiment: Investor sentiment is expected to remain constructive, with a focus on quality, theme-driven stock selection.

While the Indian stock market is expected to perform well in 2026, experts caution against expecting a broad and runaway rally. The market is likely to be more selective, rewarding investors who focus on quality stocks with strong fundamentals and earnings visibility.