Indian equity markets are expected to see a more constructive second half of calendar year 2026 (H2CY26), with analysts anticipating a gradual recovery as markets shift focus from global uncertainties to domestic earnings, liquidity, and macro fundamentals.
Will H2 favour investors?
“While near-term headwinds persist due to volatile commodity prices, which will weigh on corporate margins in the Q1 results, the setup beyond that turns constructive. This is due to easing commodity costs, currency stability, and softening yields, which collectively create a favourable backdrop for margin recovery,” said Rupen Rajguru, head of equity investments and strategy at Julius Baer India.
Rajguru, however, cautioned that a strong El Niño in 2026 remains a key risk to agricultural output, although the advancing southwest monsoon and healthy reservoir levels could help ease some concerns.
Bhowar, meanwhile, expects a clearer recovery in H2CY26, driven by improving fundamentals. He believes investor focus will shift from geopolitical developments toward domestic earnings, the execution of government initiatives, and changes in global liquidity.
“The primary factors we are monitoring have shifted from geopolitical stressors to a focused examination of the pace of earnings recovery, the conversion of government initiatives into private-sector projects, and upcoming changes in global liquidity,” said Bhowar.
Earnings recovery key
That said, some analysts expect the market recovery to be staggered rather than linear in the second half of CY26.
“Our base case is that Indian equities should have a better H2CY26 than H1CY26, but the recovery is likely to be staggered rather than linear. After a roughly 9 per cent six-month decline in the Nifty and FPI equity selling of about ₹2.78 trillion in CY26 up to June 25, the trigger is not sentiment alone; it is whether the macro feedback loop turns supportive,” said Karthick Jonagadla, managing director and CEO at Quantace.
He noted that Brent crude at $70-72 per barrel is manageable, but India’s crude import dependence keeps the $70 per barrel threshold important. Further, if the rupee stabilises around the ₹92-93 per dollar zone and CPI stays closer to the latest 3.93 per cent print than the RBI’s 5.1 per cent FY27 projection, foreign investors, he believes, can re-engage without demanding as large a valuation discount.
According to Jonagadla, the next leg of the rally will be determined less by index targets and more by earnings guidance, margin resilience, and selective FPI rotation into banks, domestic cyclicals, and export-linked beneficiaries. He, however, expects the benchmark indices to scale fresh record highs by the end of CY26, with the Nifty50 ending the year in the 27,100-27,400 range and the Sensex finishing between 88,600 and 89,500 levels.
Top sectors
Analysts broadly expect banks, pharma, financials, industrials, and defence to remain key sectors to watch in H2CY26.
“Large private sector banks and pharma are expected to outperform. Private banks stand to benefit from reasonable valuations, strong credit growth, stable NIMs, and low credit costs, supporting earnings recovery. For Indian pharma, stable US generic pricing, INR depreciation, new launches in complex generics, and specialty pharma are expected to sustain earnings buoyancy,” said Rajguru.
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