India equities: improving outlook, according to Generali Investments experts
7 JAN, 2026
By: Vladimir Oleinikov, Senior Quantitative Analyst, Generali AM (part of Generali Investments)
Guillaume Tresca, Senior Emerging Markets Strategist, Generali Investments
Indian equities have significantly underperformed global markets over the past year. “Indian stocks delivered a modest gain of just 6.5% through mid-December,” say Vladimir Oleinikov and Guillaume Tresca, compared with a 26% rise in emerging markets and an average increase of 17.5% in US equities and the MSCI EMU.
On a year-on-year basis, returns remain one standard deviation below historical averages versus the MSCI World and almost two standard deviations below the MSCI Emerging Markets index, highlighting the scale of the recent underperformance.
“This disappointing performance reflects a combination of adverse factors,” the analysts explain. These include global trade and tariff tensions, including high US tariffs affecting exporters, alongside weakness in the domestic economy and heightened geopolitical uncertainty, from conflicts in the Middle East to tensions between India and Pakistan.
Despite this, the macroeconomic backdrop has begun to improve. “Indian GDP has recently surprised to the upside and is expected to accelerate in 2026,” Oleinikov and Tresca note, supported by stronger domestic demand, monetary easing and ongoing reforms. While risks remain predominantly external, inflation is close to a 50-year low, leaving room for the Reserve Bank of India (RBI) to maintain an accommodative stance even as the easing cycle nears its end.
The first signs of an earnings recovery are also emerging. “We are starting to see early indications of a rebound in profits,” they add, as growth-supportive measures begin to take effect, including income tax relief, GST rationalisation and the recent 25-basis-point rate cut to 5.25%.
Foreign investor positioning appears supportive. “Indian equity markets have experienced significant foreign outflows—around USD 17 billion year-to-date,” the strategists point out, a figure comparable to 2022. This leaves room for renewed inflows as macroeconomic and earnings prospects improve.
Valuations remain elevated but justified by growth potential. “The 12-month forward price-to-earnings ratio for MSCI India stands at around 22 times,” they note, above most markets but supported by structurally stronger earnings growth prospects, reflecting India’s position as the fastest-growing major economy globally.
Trade policy remains a key uncertainty. “The US has imposed a 50% tariff, leaving India with one of the highest effective rates,” Oleinikov and Tresca warn, although there is a high probability of tariff reductions following improving bilateral relations, with a realistic scenario being some easing in the first quarter of 2026.
Conclusion
“We maintain an overweight position in Indian equities,” the analysts conclude, expecting that accelerating GDP growth, supportive monetary and fiscal policies, and improving earnings momentum will drive stronger market performance after the recent period of underperformance. The main risks remain external, linked to global growth, tariffs and geopolitical tensions.
