For financial year 2026, Indian markets are likely to see sideway movement. The logic behind the projection is that India’s nominal GDP growth will likely fall, which implies possible earning-per-share estimates cut, Jefferies said.

India’s nominal GDP growth will likely decline to 9% in financial year 2026, which is the lowest pace since financial year 2004, with exception of pandemic-affected financial years. However, real GDP growth will likely be healthy at 6.5% with lower inflation. This would soften corporate revenue growth, credit growth etc.

GDP deflator is likely to be around 2.5% for financial year 2026, compared to 3.3% seen in the previous financial year. The trend moving ahead will depend on CPI and WPI trends, Jefferies said.

Nominal GDP growth trends in current financial year is same as in calendar year 2019, according to the brokerage.

Jefferies is not expecting corporate revenue growth to revive materially in financial year 2026. Slower nominal GDP growth may translate into weaker nominal variables such as corporate revenue growth, subsequently weighing on earnings momentum.

Credit growth usually moves with nominal GDP growth. Hence, the decline in nominal GDP growth is already showing. The Reserve Bank of India’s pro-growth stance will likely revive bank credit growth somewhat. Jefferies expects credit growth to remain at 11–12% by March 2026.

During January–December, the MSCI India Index delivered 8% return because banks and real estate outperformed sectors, Jefferies noted. It expects the two sectors to continue this outperformance. The brokerage prefers large-cap stocks over small-caps.

IT and oil and gas stocks were in line with broader market small caps also, the brokerage said. Lower nominal growth is usually negative for consumer and retail companies, according to Jefferies. Hence the brokerage remains underweight on staple stocks.

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