Global backdrop in 2026
The outlook notes that global growth is expected to slow but remain positive in 2026, with India still among the fastest‑growing large economies. Central banks worldwide have already delivered a large number of rate cuts over the last two years, and projections indicate further policy support in 2026–27.
At the same time, the report flags important global risks such as high debt levels, fiscal deficits, potential dollar weakness, and geopolitical tensions, including US–China frictions. These risks can create bouts of volatility, but they also drive asset rotation and opportunities for countries with stronger macro fundamentals like India.
India macro: oasis in a slowing world?
The presentation positions India as relatively resilient versus many large economies, backed by fiscal consolidation, lower NPAs, contained inflation and a healthier external position. India has entered the top five global manufacturing economies by output and has delivered faster per‑capita GDP growth than several Asian peers over the last decade.
India’s non‑financial sector debt (household, corporate and government combined) remains moderate by global standards, underscoring a fiscally prudent profile. Structural reforms, improving infrastructure and a rising share of India in global GDP growth are highlighted as key reasons for sustained medium‑term optimism.
Equity markets: valuations, flows and earnings
The report points out that headline indices can mask broader market weakness, with a large proportion of NSE‑500 stocks still trading at meaningful drawdowns from their 52‑week highs. MSCI India has underperformed many global markets in calendar 2025, even as India’s long‑term growth story remains intact.
Foreign portfolio investors (FPIs) have been net sellers in Indian equities in 2025, while domestic institutions have been steady buyers. Despite this, Nifty 50 valuations are hovering close to long‑term averages, while small caps are trading at a significant premium to their history, prompting moderate return expectations.
Earnings outlook: FY26–FY28
Nifty 50 earnings are expected to grow in low double digits in the second half of FY26, with a stronger recovery projected into FY27. For the broader MSCI India universe, the report shows subdued earnings growth in the recent past, with forecasts for an acceleration from FY27 onwards.
Sector‑wise, the outlook highlights stronger earnings momentum in consumption‑linked sectors, financials and cyclicals for FY26–FY27, while some defensives and rate‑sensitive pockets may see relatively slower growth. This expected earnings recovery is positioned as the primary driver of equity returns rather than further re‑rating.
Key investment themes for equity
Financial services: improving growth and profitability
Credit growth has started to pick up, leading to a gradual rise in the credit‑deposit ratio across the banking system. At the same time, asset quality indicators such as gross and net NPAs have improved, while profitability metrics like NIMs, RoA and RoE have trended higher over the past few years.
With cleaner balance sheets and better capitalisation, banks and select non‑bank lenders are well positioned to benefit from both retail and corporate credit demand. This makes financial services a core theme in Kotak’s equity outlook.
Consumption upcycle: income and aspiration
Rising per capita income is a key pillar of the consumption upcycle, with rural income per head having crossed the often‑cited USD 2,000 threshold associated with discretionary consumption take‑off. The report underlines strong trends in retail sales across categories such as apparel, footwear, sports goods, QSR and jewellery during the 2025 festive period, aided by GST cuts and better purchasing power.
The auto sector is showcased as a prime beneficiary of rising discretionary spending, with India still among the lowest‑penetrated markets globally for both two‑wheelers and passenger vehicles. This gap, along with improving rural dynamics and replacement demand, supports a multi‑year growth story.
E‑commerce: low penetration, long runway
India’s e‑commerce market is dominated by a handful of large players but still has relatively low penetration versus developed markets and China, especially in categories like grocery and beauty. The outlook sees this gap as a “massive runway” for growth over the next several years as digital adoption deepens and logistics infrastructure improves.
Consolidation among leading platforms and more efficient unit economics are expected to support listed and unlisted opportunities across the e‑commerce value chain.
Healthcare: structural, demographic tailwinds
The healthcare section notes a steady shift in India’s disease burden towards non‑communicable and chronic conditions such as cardiovascular disease and cancer. At the same time, India’s elderly population is projected to roughly double over the next 25 years, giving the country one of the largest senior cohorts globally.
These demographic trends support long‑term structural growth for hospitals, diagnostics, pharmaceuticals and allied healthcare services.
Debt market outlook: RBI, yields and index inclusion
On fixed income, the report shows that Fed fund futures are pricing meaningful rate cuts by December 2026, while India’s CPI inflation remains within a comfortable range with benign projections ahead. The RBI Governor has indicated that macro data leaves some room for a repo rate cut, with the final decision resting with the MPC.
Fiscal consolidation is progressing, with the central government deficit expected to decline further over the coming years, and India is widely expected to enter a major global bond index (Bloomberg Global Aggregate) around 2026, potentially attracting sizeable foreign inflows. Kotak’s internal view anticipates a 25 bps RBI cut by March 2026, followed by a prolonged pause, and expects the currently steep yield curve to flatten gradually as demand–supply dynamics improve.
Role of gold and silver in portfolios
The outlook devotes a section to precious metals, highlighting that global gold reserves are finite and that central banks have been large and consistent buyers in recent years. Geopolitical risk, including references to escalating defence postures, is cited as a key driver behind this central bank accumulation.
Silver is described as both an industrial and strategic metal, with around half of its demand coming from industrial uses such as solar PV, electronics, and vehicle electrification. Structural demand has pushed the silver market into a multi‑year deficit, and the gold‑silver ratio indicates that silver remains relatively undervalued compared with gold, supporting the case for some allocation where suitable.
Kotak product angles highlighted
The presentation showcases how various Kotak mutual funds have delivered alpha over benchmarks on rolling and point‑to‑point return metrics across time periods, while clearly noting that past performance may or may not be sustained. Equity schemes such as Kotak Small Cap, Contra, Midcap, Large Cap, Large & Midcap, Flexicap and thematic funds are illustrated with return and alpha statistics versus their respective indices.
On the hybrid and debt‑oriented side, Kotak Aggressive Hybrid, Balanced Advantage, Equity Savings, Multi Asset Omni FOF and the Kotak Income Plus Arbitrage Omni FOF are positioned as ways to participate in the equity and fixed income themes discussed, with specific mention of the latter’s dynamic allocation between debt schemes and an equity arbitrage fund to seek tax‑efficient accrual and low volatility. The document consistently reinforces that investors should consider their own risk profile and time horizon and that returns are not guaranteed.
Read the full report here
