Equities seen outperforming in FY26 with 12–15% returns: Check key triggers, risks & strategy

Time of India

20-05-2025

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Equities are expected to outperform other asset classes in FY26 notwithstanding global trade tensions, US tariffs and geopolitical uncertainties, with Nifty delivering 12%-15% returns. The rise will be anchored by strong domestic demand and a healthy 6.2–6.5% GDP growth, say experts.Shailesh Saraf, smallcase manager & founder at Value Stocks, sees improvement in market sentiments with foreign institutional investors (FIIs) getting back to their ways. "The market sentiment has improved, reflected in FII net inflows of Rs 16,757 crore in FY26 so far, alongside an 8% return from the Nifty 50 and a 10% gain in the Smallcap 100 index," he said.Robin Arya, another smallcase Manager and Founder of GoalFi, lists stable government and potential earnings rebound as key triggers for domestic stock markets while taking a cautiously optimistic outlook for FY26. "We believe this year will be of consolidation with earnings improvement in companies and theme-based investing will be prevalent,' Arya said.While earnings season is at its final leg, Lotusdew Co-Founder Prachi Deuskar claims that India's domestic demand recovery gained momentum in Q4FY25, driven by strong rural consumption, favourable crop yields, and supportive government initiatives. According to her, corporate margins improved, aided by declining input costs in metals, energy, and chemicals, as well as a sharper focus on operational efficiency.As on May 18, 2025, a total of 878 companies have reported their earnings as of with a 10% YoY growth in Q4FY25, Saraf informed. "In FY25, the index has risen by 6% YoY growth, significantly lower than the 35.1% growth recorded in FY24," he added.Arya expects corporate earnings to continue to show resilience particularly in the banking, auto, and infrastructure sectors.Inflation remains largely under control with the macroeconomic environment remaining stable.Trade policies pose challenges to the domestic economy, says a smallcase press release, adding that US tariff risks (26%), could affect 12–15% of India's $450B exports.A weak INR has raised import costs, and urban consumption is showing signs of a broad-based slowdown.Also Read: Moody's US downgrade, a fresh jolt for IT stocks after stellar 30% rally – buy or avoid? For investors with a longer horizon and a stronger risk appetite, increasing allocation to high-quality smallcaps can pay off as markets continue to climb, Deuskar recommends.