Indian markets enter 2026 balancing growth optimism with risks from a massive IPO pipeline and weak FII flows. HDFC Securities sees policy support, domestic liquidity, easing global risks and valuation corrections driving a potential Goldilocks recovery, with 16% earnings growth.

Rs 2.5 lakh crore IPO boom in 2026 could create ‘liquidity drain’, says HDFC Securities; pegs Nifty at 28,720

Indian Equity Market Enters 2026 Amid Paradoxical Outlook

The Indian equity market heads into 2026 facing an unusual paradox. On one hand, optimism around growth, earnings recovery, and policy support is building. On the other, a flood of new listings threatens to stretch liquidity and test investor appetite.

Challenges Ahead

Sheer Scale of IPO Pipeline: More than 190 companies are expected to tap the primary market in 2026, collectively seeking to raise over Rs 2.5 lakh crore.
Liquidity Drain: HDFC Securities flags the risk of a liquidity drain in the secondary market as capital is diverted towards new listings.
Uncertainty Around Foreign Investor Flows: Foreign institutional investors pulled out nearly Rs 3 lakh crore from Indian equities in 2025, raising concerns about future flows.

Reasons for Optimism

Gradual Easing of Global Trade Uncertainty: Global trade uncertainty is expected to gradually come down, aided by easing geopolitical tensions and the prospect of tariff reversals.
Emerging Market Rotation: Emerging markets rotation is anticipated, with India seen as a key beneficiary.
Domestic Macroeconomic Story: India's domestic macro story remains a key pillar of HDFC Securities' outlook, with rate cuts, CRR reductions, and liquidity infusion forming part of the supportive policy mix.

Market Expectations

Nominal GDP Growth: Nominal GDP growth is expected to enter double digits in 2026, setting the stage for an earnings recovery after a challenging period.
Valuations: Valuations have corrected meaningfully, and foreign portfolio investor exposure is at historically low levels.
Upside Potential: These factors create upside potential if sentiment turns, with HDFC Securities expecting India's markets to deliver a "Goldilocks" outcome, characterised by a broad-based recovery.

Forecast for FY27

Nifty Earnings Growth: Nifty earnings are expected to grow by 16%, translating into an anticipated annual return of about 11% for the index.
Nifty Target: A yearly Nifty target of 28,720 is pegged.

(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)