Stock Market Outlook 2026: Nifty Could Gain 10% in a Year but Near-Term Risks Tilt Downside, Says Ross Maxwell

India's stock market is expected to navigate 2026 with steady but moderate gains, supported by resilient domestic demand and strong macro fundamentals, even as global uncertainties continue to pose challenges. In an exclusive conversation, Ross Maxwell, Global Strategy Lead at VT Markets, said India remains far more resilient than most emerging markets to US rate shocks and global risk-off phases, thanks to deepening domestic participation, healthy foreign exchange reserves and stable inflation.

Maxwell outlined the key global indicators that could trigger a defensive shift, the asset allocation Indian investors should prioritise, sector valuations heading into 2026 and how the Nifty 50 and Sensex are likely to perform over the next year-offering a detailed roadmap for navigating the year ahead.

How sensitive is India's equity market to a US rate surprise or global risk-off?

"I believe India well positioned and is more resilient today than in the past due to strong domestic participation. When US rates rise more than expected, foreign portfolio investors typically reduce exposure to emerging markets, leading to short-term FPI outflows from India............If a global risk-off coincides with falling crude prices, the negative impact may be partly offset by lower inflation and improved macro balances...........External shocks generally cause short-term volatility, but strong domestic demand, structural reforms and a deepening local investor base help could the market recover quickly."

Which leading indicators would trigger a tactical defensive shift in your model portfolio?

"A strengthening of the USD in the current climate could signal global risk aversion. A stronger USD tends to pull capital away from Emerging Markets and back into US assets, putting pressure emerging-market currencies. A weakening rupee raises imported inflation risk and typically leads to defensive positioning by both foreign and domestic investors. India's economy also relies heaving on oil imports, so high oil prices can increase inflation, worsen the current account deficit and raise fiscal risks. If we see a combination of USD strength, yield spikes, rising oil, INR weakness and sustained FPI outflows, it would be a clear signal to shift tactically to defence."

What hedges or asset allocations do you recommend to Indian investors now?

"Holding 10-20% in cash or liquid funds provides the ability to remain dynamic if the landscape changes and can reduce drawdown risk. Access to high-quality corporate bonds help lock in yields without taking excessive duration risk. Gold also remains a key hedge for Indian portfolios as it historically is essential to protect during global volatility. A 5-10% allocation can stabilise returns."

"In equities, look toward defensive or earnings-stable sectors, along with some allocation to exporters that benefit from a weaker rupee. To protect against any further depreciation the rupee, investors can use hedged international funds or global diversified ETFs. Also diversify across domestic equities and global multi-asset funds that are less sensitive to India-specific flows."

What is your 6 month and 1 year forecast for the Nifty 50 and Sensex? Are the risks to your forecasts skewed upside or downside?

"Over the next 6 months, I would expect to see moderate gains in the Nifty50 and Sensex, supported by solid domestic demand, resilient earnings and steady SIP flows, but due to concerns around elevated valuations and sensitivity to global yields, I would expect more moderate gains than the previous years of strong returns."

"Over the next year, assuming global rates begin stabilising and India's investment cycle continues, the Nifty50 could deliver gains of around 10%, although I think we need to keep an eye on earnings growth as the key driver. Upside potential can increase if crude remains contained and domestic reforms sustain corporate profitability."

"Risks are slightly skewed to the downside in the near term due to high valuations, potential US rate volatility, and vulnerability to FPI outflows if the INR weakens further. However, risks could shift modestly to the upside given India's structural growth and strong liquidity. Overall, expect steady but not explosive returns, with global conditions having a big role to play."

Morgan Stanley, HSBC & many have recently upgraded their stance on Indian equities to overweight. What specific factors led to this shift, and how confident are you in the projected upside?

"Recent upgrades to overweight reflect a shift toward recognising India as one of the most resilient and structurally attractive emerging markets. Domestic demand has remained strong despite global worries and corporate earnings have shown greater stability than other EM's. India maintains strong macro fundamentals, controlled inflation and a healthy banking system. Structural drivers such as manufacturing expansion and increased spending on infrastructure, support medium-term earnings."

Which sectors now appear reasonably valued and which remain overvalued heading into 2026?

Banks generally speaking look more balanced on valuation as credit growth normalises. Asset quality remains strong, supporting more predictable earnings. Capital goods and manufacturing are still fairly valued given sustained order books and improving private investment, even given their strong multi-year performance. Pharma and export-linked manufacturing have also corrected to more reasonable levels, whilst Telecoms looks fundamentally stronger, leaving valuations more grounded.

The consumer discretionary sector continues to trade at rich multiples that price in several years of growth. High valuations make this group vulnerable to any slowdown in consumption or margin pressure. Fast-moving consumer goods stocks also remain expensive relative to their muted volume growth. IT services still carry valuation risk given uneven global tech spending and margin pressures.
High-growth internet/retail platforms also remain overvalued, with market optimism running ahead of sustainable cash-flow visibility.

Given global uncertainties, including US rate moves and emerging market inflows, how should Indian investors balance risk and return in 2026?

"The uncertainty of US rate moves, USD strength and unpredictable emerging-market flows argues against taking concentrated or aggressive positions. So, it will be important to diversify globally, have selective exposure to equities and make sure they are balanced with strong downside protection...... Global diversification through multi-asset funds with some currency hedging will also reduce reliance on India-specific cycles while mitigating FX risk. They should look to stay invested in India's growth, but with an eye on making sure they have adequate protection against global macro volatility."