CLSA Predicts Muted Returns for India's Market in 2026, Backs Consumption and Real Estate

India’s reduced valuation premium after its underperformance in 2025 has made the market more acceptable to global investors, but returns in 2026 are likely to remain moderate, according to Vikash Kumar Jain, India Strategist and Head of India Research at CLSA.

Jain said 2026 will differ from last year due to fewer policy announcements and limited room for fiscal and monetary action. “Absolute valuations do not leave a lot of room for re-rating,” he said, adding that India could still act as a portfolio hedge during periods of global uncertainty.

He noted that major policy steps such as income tax cuts, goods and services tax (GST) changes, and rate cuts were largely announced in 2025. In 2026, the focus is expected to shift towards fiscal consolidation and assessing the impact of past measures. “We are not expecting any fireworks,” Jain said.

Jain said CLSA has increased its focus on consumption, adding retail and quick commerce names after recent market consolidation. “We doubled down on consumption,” he said, highlighting an overweight stance on discretionary spending, staples, and select auto names.

Real estate is another sector CLSA prefers, supported by the impact of lower-for-longer interest rates. Jain said these areas could benefit even in a phase where market returns lag earnings growth.

On broader market returns, Jain said high single-digit gains on the Nifty 50 represent the best-case scenario for 2026. He expects a gradual de-rating phase, where valuations compress while earnings grow.

“Returns will perhaps lag earnings growth,” Jain said, adding that this could reduce the risk of sharp corrections if the global bull market continues.

Jain said crude oil markets appear oversupplied on paper, but geopolitical risks could quickly change the balance. He expects prices to move higher as the year progresses.

“We are more in the range of $70 per barrel plus,” he said, citing potential supply disruptions linked to Iran, Russia, and geopolitical actions.

On energy stocks, Jain said CLSA prefers upstream companies over downstream oil marketing firms. “We like the upstream more,” he said, pointing to names that benefit directly from higher crude prices.