India's growth will be a surprise in 2026: Kotak's Nilesh Shah on equity market outlook next year

After a phase of outsized gains, investors should brace for a more measured year ahead, according to Nilesh Shah, managing director of Kotak Mahindra Asset Management Company. Returns are expected to remain positive in 2026, but expectations need to be reset after an exceptional run in recent years.

In Kotak Mutual Fund's annual market outlook for 2026, Shah said the global economy is entering a phase where fiscal policy is taking the lead, while monetary support is gradually easing. Rate cuts are underway, but the environment that fuelled strong market rallies earlier is no longer in place. "Global growth will remain positive but may slow down a little in CY26 over CY25," Shah said.

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Global risks for investors

Shah outlined several risks that could shape global markets in the coming year, including inflation, technology disruption and geopolitics. "Key risks for the global market remain de-dollarization, return of inflation, is AI a bubble and finally the US China rivalry," he said.


On China, Shah pointed to the long-term volatility in equity markets despite the country's economic rise. He said that repeated boom-and-bust cycles have limited long-term wealth creation for investors. "If you see today's CSI 300 index, it's trading where it was trading 17 years before," Shah said, adding that any sharp correction in China could push global capital flows towards alternative markets such as India.

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The US economy continues to benefit from heavy investment in artificial intelligence, but rising government debt and twin deficits remain a concern. Shah said currency movements and capital flows will be key variables to watch in 2026.

India's growth outlook in 2026

Shah believes India's structural transformation over the past decade, from high inflation and stressed banks to macro stability and stronger balance sheets, provides resilience against global shocks. However, he cautioned against unrealistic growth expectations. "Overall, India will continue to grow in mid-single digit," Shah said.

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"It will be the fastest growing major economy, but it is unlikely to get into double-digit growth." Shah said slowing private investment and the risk of artificial intelligence disrupting employment in IT, outsourcing and global capability centres, which form a significant part of India's economy, could pose a challenge to India's growth.

Equity market outlook in 2026

While benchmark indices remain near record levels, Shah said the broader market tells a more nuanced story. "Markets are near all-time high, but many stocks are significantly below their all-time high level," he said.

Earnings growth for large companies has remained weak in recent quarters, but Shah expects improvement ahead. "Earnings growth for the last six quarters for the Nifty 50 companies was in single digit," he said. "Next year earnings growth is likely to bounce back into double digit."

Shah also cautions investors against extrapolating past returns into the future. "What happened in the last 5 years is unlikely to repeat in the next 5 years in terms of return," he said.

Which sectors are poised for growth in 2026?

Shah said financial services and consumer-oriented businesses appear better placed as policy measures put more money into the hands of taxpayers, borrowers and government employees. Healthcare and e-commerce also feature among the medium-term opportunities.

On fixed income, he expects the Reserve Bank of India to remain supportive of growth as inflation has cooled sharply, creating room for further easing.

Gold and silver continue to form part of Shah's asset allocation framework, driven by strong central bank buying and geopolitical uncertainty. "On gold and silver, we continue to remain bullish primarily driven by central bank activity," he said, while cautioning investors to cap exposure due to volatility and the lack of inherent income.

Shah summed up the year ahead as one of moderation rather than exuberance. "CY26 is again likely to be a year of moderate return with all the three asset classes equity, fixed income and precious metal delivering positive return," he said.

For investors, the message is clear: Stay diversified, temper expectations and focus on long-term fundamentals rather than chasing short-term gains.