New Year 2026 Equity Outlook and Top Picks by Motilal Oswal

As we enter 2026, Indian equity markets are trading close to all-time highs, with the Nifty ending CY25 with gains of nearly 10% on a year-to-date basis. Broader markets displayed mixed trends, with midcaps showing relative resilience, while small-caps witnessed sharper bouts of volatility. After two years of a sharp rally, Nifty Midcap100 managed a modest ~5% return in 2025, while the Nifty Smallcap100 declined by ~6%.  Following a year of consolidation marked by global uncertainties and earnings moderation, we expect 2026 to be a year of recovery and steady growth. Improvement in corporate earnings, supportive domestic policies and a revival in private sector investments are likely to drive market performance through the year. Additionally, any resolution of the tariff stalemate with the US could act as an important external catalyst for markets.

Key events in CY26:

• Domestic Factors: Union Budget, government spending, RBI policy, FII trends.
• Global factors: US-India Trade Agreement, US interest rates, geopolitical issues, etc.
• Earnings & Valuation: Corporate earnings growth trend and valuations in broader market.

Valuation and Outlook:

Nifty climbed to record high of 26,325 in Dec’25, led by strong domestic flows and steady economic growth. From a valuation standpoint, the Nifty’s 1 year forward P/E stands at 21.5x, around 4% above its long-period average (LPA) of 20.8x. In comparison, broader market valuations remain elevated. The Nifty Midcap100 and Smallcap100 are trading at P/E multiples of 29x and 25x, representing premiums of ~26% and ~50% over their respective LPAs. This suggests that large-cap valuations are relatively reasonable after recent consolidation, while midcap and small-cap stocks warrant a more selective approach.

India’s long-term structural growth story remains intact, supported by favourable demographics, rising digital adoption, increasing financialisation of household savings and continued reform momentum. We believe the government’s ongoing policy initiatives will help reset the trajectory of corporate earnings over the medium term. We expect Nifty earnings growth to bounce to 9% in FY26E (from 1% in FY25) and further improve to ~15% in FY27E and FY28E. 

New Year 2026 - Top Picks