VK Vijayakumar, the Chief Investment Strategist at Geojit Financial Services, has projected a positive yet measured outlook for the Indian stock market in 2026. In an exclusive interview, he forecasted that the market is poised to deliver a decent return of 12 to 15% in the coming year. However, he tempered expectations by stating there is no scope for a runaway rally exceeding 15%.
2025 Learnings and the 2026 Turnaround
Reflecting on 2025, Vijayakumar noted that the year was marked by modest returns, largely due to elevated valuations and pedestrian earnings growth. A significant lesson was India's substantial underperformance compared to other global markets. This experience underscored the critical need for geographical diversification and a multi-asset investment strategy, especially given the strong performance of assets like precious metals.
He believes 2026 will be a better year for Indian equities. The fundamental backdrop is improving, setting the stage for a rally. Key drivers include an expected revival in earnings growth, which is likely to begin gaining momentum from the third quarter of the 2025-26 financial year (Q3 FY26).
Earnings Revival and Sectoral Drivers
Vijayakumar pointed to specific factors that will fuel corporate profits. The reduction in Goods and Services Tax (GST) rates, effective from late September 2025, has already stimulated demand in sectors like automobiles and consumer durables (white goods).
He expects profit growth to be led by the automobile sector, which will benefit from both higher revenues and operational leverage. Other sectors poised for strong performance include financials (due to robust balance sheets and record-low NPAs), telecom, and hospitality (hotels and travel). Overall, he anticipates Q3 FY26 earnings to grow at low double-digit rates.
The Goldilocks Economy and External Factors
From a domestic macroeconomic perspective, Vijayakumar describes India as being in a 'Goldilocks' setting. Despite external headwinds like US tariffs, the economy remains robust with GDP growth likely to touch 7.3% in FY26. Inflation is under control, with the Consumer Price Index (CPI) projected around 2% for FY26. For FY27, he targets GDP growth above 7% and inflation near 4%.
Most importantly for investors, he projects earnings growth of around 15% for FY27. On the external front, he emphasized that an India-US trade deal, expected in early 2026, is crucial. Such a deal would help address the trade deficit, stabilize the rupee (Asia's worst-performing currency in 2025), curb FPI outflows, and revive jobs in impacted sectors like textiles and gems & jewellery.
Foreign Investment and the AI Trade
Addressing the question of Foreign Institutional Investor (FII) reluctance, Vijayakumar explained that 2025 was dominated by the global 'AI trade,' which benefited countries like the US and Taiwan. India, perceived as an 'AI loser,' saw sustained FII selling in non-AI stocks as money moved into AI-centric markets.
He expects this trend to lose steam and reverse in 2026, which would benefit markets like India. The more pivotal factor for attracting foreign capital, however, will be the tangible revival of earnings growth from Q3 FY26 onwards, which could bring FIIs back to Indian shores later in the year.
In summary, while Vijayakumar is optimistic about India's structural economic strength and corporate earnings potential, he advises investors to maintain realistic return expectations and a diversified portfolio approach for 2026.
