Indian equities, battered in 2025 by trade wars and earnings misses, finally spot “light at the end of the tunnel,” says BNP Paribas Securities Asia head Manishi Raychaudhuri in a Reuters column on March 1, 2026. Nifty’s valuation premium over Asia peers has halved to 38% from 87% peak, with P/E dropping to 21x—enticing FIIs amid domestic revival.
2025 Pain Points Fade
Last year’s woes: Earnings growth slashed by weak consumption, capex; FIIs dumped $19B equities, $353M FDI amid rupee -5%. Sensex lagged EM peers, valuations screamed “expensive.”
Turnaround catalysts:
- Budget Boosts: Feb 2025 tax cuts (₹11T relief), Sept GST slash ₹1T—IIP consumer goods up, durables (auto/home) lead.
- Capex Revival: Govt infra/AI spend rises; Adani’s $100B AI centers by 2035 spur metals/machinery.
- FPI Inflows: $2B net buy Feb 1-3 after Jan $4B sell—rupee stabilizes.
Earnings, Trade Deals Spark Hope
Q2FY26 profits tick up as inflation eases. Trade pacts (US Supreme Court tariff relief) revive FDI, rupee cycle. Policy divergence favors India vs. China slowdown.
Focus sectors: Consumer discretionary, industrials, construction, chemicals, metals, financials/NBFCs—riding govt tailwinds.
Valuation Reset: Opportunity Beckons
P/E 21x (long-term avg), premium 38%—narrowed from Sept 2025 frenzy. FIIs eye re-entry as sentiment flips.
2025 vs. 2026 Snapshot:
| Metric | 2025 | 2026 Outlook |
|---|---|---|
| FPI Net Flow | -$19B | +$10-15B |
| Rupee vs USD | -5% | Stable |
| Earnings Growth | Sluggish | 12-15% |
| Nifty P/E | 25.2x | 21x |
Risks Linger: High Hurdles Ahead
RBI rates cut 125bps but 10Y yield sticky. Trade uncertainty (US deals), Russia-Ukraine, yen unwind persist. Consensus profits lag recovery; no broad rally yet.
Raychaudhuri: Fragile sentiment needs trade clarity, consumption proof.
Indian Edge: Domestic Resilience
DIIs absorbed FII sells; retail SIPs soar. Nifty mid/smallcaps outperform on PSU/auto.
For Patiala analysts: Cyclicals long; hedge valuations. 2026 outperformance beckons if stars align.
Indian equities tunnel nears exit—earnings, policy light the way.
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