The Indian equity markets delivered a muted performance in the calendar year 2025, trailing behind most major global peers. This underperformance was attributed to a combination of significant foreign institutional investor (FII) outflows, corporate earnings that fell short of expectations, elevated market valuations, and overarching anxieties regarding potential US tariff policies.
2025 Performance and the Bullish Turn for 2026
Despite the challenging environment, the benchmark indices managed to post gains. The Nifty 50 index advanced by 10.5%, while the Sensex climbed 9% over the course of 2025. However, brokerage firm Motilal Oswal Financial Services has expressed a decidedly optimistic stance for the domestic market's prospects in 2026.
The firm believes Indian equities are well-positioned to recover from the previous year's lag, driven by brighter earnings outlooks, supportive domestic macroeconomic conditions, and a more stable geopolitical landscape. "We have a positive outlook on Indian equities and believe that Indian markets are well poised to retrace the underperformance of CY25," the brokerage stated in its analysis.
Motilal Oswal also addressed concerns linking corporate profit growth directly to nominal GDP figures, suggesting this worry is exaggerated. The firm emphasized that corporate earnings are influenced by a multitude of factors beyond broad economic growth alone.
Valuations and Top Stock Recommendations for Long-Term
On the valuation front, the brokerage finds current levels reasonable. The Nifty is trading at approximately 21.2 times earnings, which is near its long-term average of 20.8 times. The firm anticipates that any acceleration in earnings growth could lead to an expansion in these valuation multiples.
Divya Agrawal, Research Analyst at Motilal Oswal Financial Services, has recommended five stocks for long-term investment based on this positive outlook:
State Bank of India (SBI) | Target: ₹1,100
Agrawal praised SBI's resilient operations, strong balance sheet, and improving asset quality. The bank's credit growth remains robust at nearly 13% year-on-year, with management guiding for 12–14% loan growth. Key initiatives like Project Saral and a strong corporate pipeline are expected to support net interest margins (NIMs) above 3%.
Bharat Electronics Ltd (BEL) | Target: ₹500
The analyst highlighted a major defence procurement approval in December 2025, where the Defence Acquisition Council cleared proposals worth ₹79,000 crore. BEL is poised to secure significant orders from this for radar systems, communications equipment, and other electronic warfare systems. The company also aims to boost its export contribution from 3-4% to 10% of total revenues in the coming years.
TVS Motor Company | Target: ₹4,159
TVS Motor continues to outpace the industry, supported by strong festive demand and benefits from GST rate cuts. Its export performance remains robust across regions like Africa and Latin America. The company's healthy product launch pipeline is expected to drive a strong revenue and profit compound annual growth rate (CAGR) over FY25-28.
Max Financial Services | Target: ₹2,100
Max Financial is noted for maintaining better-than-industry Annualised Premium Equivalent (APE) growth. Its Value of New Business (VNB) margin has expanded strongly, fueled by growth in protection and annuity businesses. The firm expects VNB margins to improve further, reaching around 26.5% by FY28.
Zydus Wellness | Target: ₹600
Zydus Wellness is identified as a player in high-growth consumer wellness categories. Unlike some FMCG peers, it has significant room to expand its user base, particularly among youth and affluent consumers. The company is expected to deliver a 14% organic EBITDA CAGR from FY25 to FY28E.
Conclusion: A Year of Cautious Optimism
While 2025 proved to be a year of relative underperformance for Indian stocks, the fundamental narrative for 2026 appears to be shifting. Analysts point to reasonable valuations, anticipated earnings recovery, and strong domestic macros as key pillars for a potential market rebound. Investors are advised to focus on companies with resilient business models and clear growth trajectories, as highlighted in the expert recommendations, while always considering their own risk profile and consulting with certified financial advisors before making investment decisions.
