Mood Shift Underway As Markets Look To 2026, Says CLSA’s Vikash Kumar Jain

Indian equities may finally be turning a corner after a year marked by uncertainty, uneven earnings and global volatility, according to Vikash Kumar Jain, Strategist and Head of Research at CLSA India.

Jain believes there has been a clear change in market mood after a long spell of downgrades, mixed sentiment and sustained underperformance against emerging market peers. While India entered 2025 weighed down by concerns over what a Trump administration might mean for tariffs and trade, the narrative has slowly begun to repair itself as expectations of better India–US headlines grow.

At one stage, India risked being among the last countries to sign a trade agreement with the US, even after early indications that it would be the first. Meanwhile, Jain told NDTV that global markets were buoyed by a powerful AI-led bull run in which India played little part, leaving domestic equities distinctly out of favour. Even as global indices surged to multi-decade highs, India spent 13 months merely returning to previous levels, having effectively undergone a valuation derating.

However, Jain argues that the passage of time has helped Indian markets absorb earlier shocks. Relative valuations have become more reasonable as global equities rallied while India moved sideways. The government’s recent policy steps, including income tax cuts, interest rate cuts and GST reductions. have also contributed to improving sentiment.

With many of the earlier concerns diminishing, the list of complaints against India has shortened, allowing investors to reassess exposure. CLSA’s proprietary India Bull/Bear Index, which flashed an extreme bearish signal in September, prompted the brokerage to turn constructive, a call that coincided with the subsequent market rebound.

Despite the improving mood, Jain remains cautious about earnings expectations. While large caps and mid caps saw consensus upgrades in the most recent quarter, small caps continued to suffer downgrades. He warned that current forecasts for mid- and small-cap earnings growth appear misaligned with the reality of nominal GDP growth stuck below 9%.

Achieving such ambitious earnings outcomes would require far stronger revenue momentum than the economy currently suggests. Jain prefers the more modest and achievable expectations embedded in large-cap estimates, which project around 10% to 11% earnings growth over two years.

Looking ahead, Jain does not expect the next leg of the market to be broad-based. Small caps, he pointed out, still trade at expensive premiums to the Nifty despite persistent earnings disappointments.

The gap between expectations and actual delivery remains significant in the segment, making selective investing essential. With markets already near 21x forward earnings, he believes large absolute upside is unlikely unless the global bull run continues. Instead, stock picking will become increasingly important.

On sectors, Jain highlighted three themes that CLSA is backing for 2026. First, IT stands out as a contrarian overweight, supported by expectations of improving India–US relations, easing concerns around H1B visas and the possibility of trade deal progress. A sentiment shift in these areas could give the sector a meaningful boost.

Second, CLSA favours rate-sensitive sectors, anticipating that the next phase of policy support will be monetary rather than fiscal, with the potential for an extended period of easier interest rates.

Third, consumption is expected to strengthen as the cumulative effects of tax cuts, GST reductions and lower rates filter through to household demand.