Stock market outlook: 5 key factors that will shape Indian stock market in FY26

The Indian stock market ended the financial year 2025 (FY25) with a modest gain of 5.34 per cent despite a massive selloff in the second half of the year due to stretched valuations, weak earnings, heavy foreign capital outflow amid rising US bond yields and the dollar, and global uncertainty.

The frontline index, Nifty 50, hit its all-time high of 26,277.35 on September 27 last year. However, it failed to sustain gains and entered a downward spiral that continued until February 2025. After suffering losses for five consecutive months—its longest monthly losing streak since its inception in 1996—the Nifty 50 managed to end March with a gain of 6 per cent.

Top Nifty 50 gainers in FY25

Some 17 Nifty 50 stocks rose more than 10 per cent in the last financial year, with Bharat Electronics (up 50 per cent), Bharti Airtel (up 41 per cent) and Shriram Finance (up 39 per cent) as the top gainers. Overall, 29 stocks ended in the green in the index in the last financial year.

Top Nifty 50 losers in FY25

11 stocks fell more than 10 per cent in the Nifty index last year; IndusInd Bank (down 58 per cent), Jio Financial (down 36 per cent) and Tata Motors (down 32 per cent) ended as the top losers in the index.

5 key triggers for the Indian stock market for FY26

Experts highlight the following five key factors shaping domestic market sentiment in the current financial year.

1. Earnings trajectory

FY25 was marked by significant weakness in earnings of India Inc. This weakness in earnings was led by sticky inflation, limited government capex due to Lok Sabha and state assembly elections, and geopolitical factors.

There are expectations that earnings will revive from Q1FY26, while Q4FY25 numbers could be stable.

Healthy earnings from key sectors, such as financials, automobiles, IT, and FMCG, will boost market sentiment.

2. Growth-inflation dynamics

Indian economy is expected to see a healthy growth of over 6 per cent in FY25.

The National Statistical Office estimates India's Gross Domestic Product (GDP) growth to be at 6.5 per cent in FY25.

In the last policy meeting in February, the Reserve Bank of India projected real GDP growth for FY25 at 6.4 per cent and at 6.7 per cent for FY26.

Inflation is also declining and expected to remain benign in the coming months. The RBI expects CPI inflation to be 4.8 per cent in FY25 and 4.2 per cent in FY26.

Tanvi Kanchan, the head of strategy at Anand Rathi Shares and Stock Brokers, underscored that India’s Real GDP is expected to grow by 6-8 per cent and Inflation is expected around 4-5 per cent over the next five years. With this India’s nominal GDP growth is expected around 11-12 per cent over next five years.

Inflation dynamics will play a crucial role in shaping the Indian stock market. The upcoming monsoon season and policy support will be key determinants, while weather-related shocks and global uncertainties could disrupt expectations for domestic growth and inflation.

"India’s economy is well-positioned for growth, but uncertainties in global markets, financial volatility, and trade disruptions remain key risks. Sustained policy support and domestic resilience will be essential in maintaining economic momentum," said Kanchan.

Inflation is also declining and expected to remain benign in the coming months. The RBI expects CPI inflation to be 4.8 per cent in FY25 and 4.2 per cent in FY26.

Tanvi Kanchan, the head of strategy at Anand Rathi Shares and Stock Brokers, underscored that India’s Real GDP is expected to grow by 6-8 per cent and Inflation is expected around 4-5 per cent over the next five years. With this India’s nominal GDP growth is expected around 11-12 per cent over next five years.

Inflation dynamics will play a crucial role in shaping the Indian stock market. The upcoming monsoon season and policy support will be key determinants, while weather-related shocks and global uncertainties could disrupt expectations for domestic growth and inflation.

"India’s economy is well-positioned for growth, but uncertainties in global markets, financial volatility, and trade disruptions remain key risks. Sustained policy support and domestic resilience will be essential in maintaining economic momentum," said Kanchan.

3. The Trump factor

Former US President Donald Trump's tariff policies have added significant uncertainty to global markets. A trade war could slow global economic growth and heighten inflation risks. While India may be among the least affected nations, it cannot remain insulated from a weakening global economy.

Trump's tariff policies will be a crucial trigger for the Indian stock market going ahead.

4. US Federal Reserve

The US Federal Reserve Chair, Jerome Powell, indicated in the last policy meeting the possibility of two rate cuts this year. However, he highlighted the risks associated with Trump's policies and reiterated that the US central bank will remain data-dependent in deciding further policy moves.

The US Fed's interest rate trajectory and commentary on growth and inflation in the US will be among the key triggers that will shape the movement of US bond yields and the dollar and influence stock market sentiment.

5. Global factors

Evolving situations in the Middle East, a trade war triggered by Trump's tariff moves, and Chinese economic growth will also be among the major factors affecting the Indian stock market.

If the Chinese economy experiences robust growth due to policy measures, it could lead to some foreign capital outflows from the Indian stock market. Meanwhile, escalating tensions in the Middle East may push crude oil prices higher, posing a challenge for India, one of the world’s largest oil importers.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions, as market conditions can change rapidly, and circumstances may vary.