India outlook 2026: Earnings recovery, policy tailwinds and a resilient growth story

India is poised for earnings recovery in 2026, as supportive fiscal and monetary policies continue to underpin the resilience of domestic consumption. With valuations also becoming more favourable and US tariff risks potentially easing, Templeton Global Investments (TGI) is cautiously optimistic about India’s outlook following a turbulent year.

In the longer term, the fundamentals and structural themes for Indian equity investing remain very much intact. We maintain our high conviction ideas in the discretionary consumption, health care and banking sectors, among others.

Earnings recovery, less demanding valuations

The year of 2025 was marked by unprecedented global trade disruptions and geopolitical headwinds. In this environment, forward earnings estimates in India have gone through multiple downgrades throughout 2025. The current projections put India’s earnings per share (EPS) growth for fiscal year 2026 (FY26, ending in March 2026) at around 10%, slowing down from 12% in the previous year.¹

For the full year of 2026, we believe EPS growth in India can recover to a mid-teen percentage level, with some positive momentum already showing in the July–September 2025 quarterly results season. Earnings revisions have also stabilised in late 2025, and estimates for one-year roll-forward EPS have been improving since September 2025 (Exhibit 1).

Over the coming months, we expect earnings growth among domestic-facing and consumption-related sectors—such as consumer staples, consumer discretionary and autos—to accelerate in the second half of the current financial year. Entering financial year 2027 (April 2026–March 2027), earnings growth will likely be more broad-based, with resilience shown across both domestic and export-oriented sectors.

One of the key earnings drivers we will be watching is the potential expansion of margins. In broad terms, Indian companies should continue to maintain an EBITDA (earnings before interest, taxes, depreciation and amortisation) margin of around 20–22% over the current and the next financial year, with some scope for marginal improvements. Select sectors or companies may see stronger margin growth that could catalyse better earnings performance in the near term. For instance, we note that cost reduction initiatives across many cement companies are likely to lower cost and, coupled with pricing rebound from a low base and demand recovery, should lead to robust earnings growth in the next financial year.

This potential earnings recovery will come at a time when the underperformance of Indian equities in 2025 has pushed valuations down to a less demanding level.

Between January and November 2025, the MSCI India only gained 4.8%, while the MSCI Emerging Markets Index returned 30.4% and the global benchmark MSCI ACWI delivered 21.6%.² The price-to-earnings premium of Indian equities has shrunk sizably in tandem (see Exhibit 2), and their valuations now appear more compelling, particularly relative to certain red-hot emerging markets.

As the earnings outlook potentially brightens and valuations become more compelling, we think the stage is set for global investors to ramp up their focus on the Indian market again. In doing so, they may also benefit from policy tailwinds and an improving macro environment.

Policy benefits coming through, long-term growth intact

In 2025, the Indian government rolled out a series of fiscal policies to boost demand and stimulate growth. Chief among these is the income tax concessions targeting mainly the middle class, announced in February, and an overhaul of the goods and services tax (GST) brackets that effectively reduce rates for a large variety of products, implemented in September.

With the Reserve Bank of India (RBI) also cutting policy rates by a combined 125 basis points in 2025 amid low inflation rates, India has a palette of pro-growth policies that should yield their full effects entering 2026. Forward-looking confidence among both urban and rural consumers has been robust against this backdrop (see Exhibit 3). All told, we see sufficient policy tailwinds for consumer spending growth and private sector capex recovery going forward.

External headwinds may also ease as the India–US trade relations potentially improve. Negotiations for a framework trade agreement have made ample progress as of December 2025, the success of which is expected to cut the 50% US tariffs to around 15–25%. We remain hopeful that a deal will materialise in early 2026, removing a key overhang for India’s outlook. A separate, full-fledged bilateral trade agreement is simultaneously in the works, paving the way for a stabilised trade relationship that is conducive to structural long-term growth.

All factors considered, we reiterate our view that India’s economy is well anchored by strong and resilient domestic consumption. The country can comfortably maintain its position as the world’s fastest-growing major economy, with gross domestic product (GDP) growth of around 6.5% until at least 2029 (see Exhibit 4).

Consumption and health care themes still valid

India’s positive outlook and firm economic fundamentals allow us to maintain our high conviction on sectors such as consumption, health care and banks:

• Consumption and premiumization: Domestic consumption remains the core of India’s economic growth engine. Favourable demographics—with the youngest population among large economies—and the rise of the middle class (see Exhibit 5) will continue to drive discretionary spending and demand for more premium offerings. This may translate to opportunities in, for instance, the hotel and leisure market, where demand for luxury hotel rooms is outpacing supply, while a recovery in travel and wedding activities should lead to acceleration of revenue growth in 2026.³