Come 2026, as in every year, the market will do what it always does with unmitigable zeal and fervour, as though its core DNA has schadenfreude embedded in it — humbling a few investors, fund managers, analysts and market commentators without any prejudice. It does it with such intense focus that across a cycle or two, no one is spared. Decades ago, billionaire American investor and author Ken Fisher called the stock markets ‘The Great Humiliator: Its aim is to humiliate as many people as it can for as long as it can for as many dollars as it can.’
According to him, while the market wants to humiliate everyone, it has a strong preference for the biggest and most famous. For example, the dotcom boom and subprime bubble carried on for years till some famous bears were humiliated, and just as that was done and the bulls were popping their champagne, it was their turn to get severely humiliated. During the frenzied days of the dotcom boom, economist Kevin Hassett, who is now a front-runner to replace Jerome Powell as the Chair of the Federal Reserve, made an infamous forecast in 1999 that the Dow Jones will rise four-fold to 36,000 by 2002-04. In reality, it actually crossed 36,000 only in 2021!
While such humiliations are yet to play out severely in the current cycle of the last six years, there have been quite a few casualties along the way:
The fund managers and analysts who gave the big bullish target of Sensex hitting 1,25,000 by 2025 (not to forget the target that Sensex can hit 2,00,000 by 2030 given by a famous brokerage in 2021!) :
The one who predicted ‘the world is going to end’ kind of market crash :
the one who told you gold is not a good investment as it is an ‘unproductive asset’ :
Those who play around with the same outlook year after year :
Bottomline: Anyone big and famous in the field has been blindsided by something unexpected playing out in the markets every year. There is no one who has scored 100 out of 100 when it comes to market prediction. Hence, it is important to treat all targets for the year 2026 with salt — whether it is with a pinch or pound depends on the forecaster’s track record and the rationale for their outlook.
At bl.portfolio, we have always stayed clear of targets (except in the case of Technical Analysis, which comes with a clear stop-loss that needs to be adhered to), and we shall diligently do the same this year also. Targets may be fine for things in life that we can control or can be achieved by our effort, but maybe not for markets over which no one has any control.
What we can do is give clarity on what is simmering underneath in the market and the multiple pulls and plugs that can play out in 2026, based on which you can decide on how to approach investing in equities this year.
Before deciding on the approach, it is important to be crystal clear on the one and only factor that moves market up or down — if the cumulative force of buyers supersedes that of the sellers, markets move up and vice versa. How this plays out through the year, determines the market performance for the year. The forces here on either side are impacted by factors such as liquidity, sentiment, fundamentals and global macros acting upon each other.
As we enter 2026, some of these factors are not as supportive for the buyers, contrary to much of the time in the current bull market. This can be the takeaway from the trends that played out in H2 of 2025.
Liquidity
To begin with, after over a decade of cheap money since 2008-09, global liquidity tightening appears to be a structural trend. Any doubts, check out the private credit tremors in the US and the stubbornly high 10-year bond yields in the US, Europe and Japan. In recent months, this has also reflected in the crash in liquidity proxies like cryptos and stocks with hardly any revenues but built on stories (like the Quantum Computing stocks listed in the US). There has even been a bifurcation in the AI trade, with unprofitable but core AI plays like Coreweave tanking 62 per cent from its all-time highs reached in June 2024. A tech bellwether stock like Oracle too crashing 44 per cent from its all-time highs in just under four months, due to concerns on sustainability of its debt binge to become an AI leader, is another clear indicator of this.
Further domestically, one of the defining factors of Indian markets in 2026 is the FPI exodus. It is not that they are pessimistic on India’s fundamentals, but that as money keeps becoming less cheap, prioritisation and risk versus reward take centre stage in investing. Whether it is the 175-basis point cut in Fed Funds rate since September last year or even the recently-launched ‘reserve management’ to infuse some liquidity in the US financial system by the US Fed, has not turned the tide and rightly so, as we explained in our article, ‘What must change before FII’s return’, in our bl.portfolio edition dated December 21, 2025.
That eight out of 10 stocks listed on the BSE did not outperform your fixed deposit in 2025, is a fallout of this tightening global liquidity. While cuts in domestic interest rates and liquidity infusions have supported the markets, so far they have not proven sufficient to entirely offset the external factors and drive significant returns. That over ₹7.50 lakh crore of equity buying by DIIs could not sufficiently offset the near ₹1.6 lakh crore in selling by FIIs in 2025, to deliver any great returns is an important math to bear in mind here when it comes to importance of global liquidity for our markets.
Overall, it does appear that the global liquidity environment is gradually shifting to the pre-2008 era. As the cost of capital increases, just as water becomes precious and rationed in times of scarcity, capital too gets allocated more selectively as the hurdle rate for investments rises. We are definitely not at the scarce level, but a U-turn in liquidity may have started. In such an era, valuations and fundamentals will matter more than in the past.
Fundamentals
Early in 2026 — the fundamentals appear mixed. On the positive side, domestic economy and corporate earnings growth are on an improving trajectory, while the cost of capital/interest rates are declining. On the negative side, valuations are not attractive and earnings growth estimates for CY26 might prove to be over optimistic as they have been in the last couple of years as well.
Based on trailing twelve-month data (sourced from Bloomberg) up to September 2025, the Nifty 500 is trading at CY25 PE of just around 27 times. Here, we have computed valuations by dividing total market-cap by total profits (not based on free float market cap), as this gives a clearer perspective. While it is debatable whether these are extreme valuations, they are definitely not attractive. In our view, these are expensive valuations that do not offer much margin of safety, especially when considering the risks to earnings growth. Digging through the universe also, value is hard to find as more stocks have moved up in the valuation bucket.
Even when using a different valuation metric like the Buffett Metric (market cap divided by GDP), which is at 138 per cent, there is not much comfort. A couple of decades ago, he explained why it’s a useful gauge, as value of stocks cannot outperform the economy endlessly. It is important for investors to note here that when the market cap and GDP are plotted in a graph, it is clear they are not parallel lines which intersect at infinity, but curved lines that intersect or at least converge on and off. Whether it is 2026 or later, there will be a phase where markets will underperform the nominal GDP growth.
Can earnings growth support stocks? While there might be many estimates out there projecting around mid-teen growth in Nifty 500 earnings over the next two years, which cannot justify a 27 PE but can provide a case to keep the momentum going, here are some practical constraints to factor.
One, close to 40 per cent of Nifty 500 earnings are contributed by financials. Excluding financials Nifty 500 trades at an even more expensive PE of 33 times. A lot depends on the financial sector delivering, and this will require credit growth to pick up. For example, the sequential net profit growth of the financials sector was only around 1.6 per cent in the September quarter.
Two, with net profit margin at around 9.6 per cent, margin expansion from the current levels is going to be challenging for India Inc. The S&P 500 has a net profit margin of 12 per cent. Take out from the list the technology companies that dominate the world, the net profit margin shrinks to 10.5 per cent. Adjust for the lower corporate tax rate in the US, it gets even closer to the net profit margin in India.
Bottomline – earnings growth for India Inc from here can largely come only from revenue growth. There was a time when margin expansion could be conjured out of ‘thin air’ – like the corporate tax cuts which, with the stroke of a pen, boosted margin for India Inc, but such things are largely behind. Margin expansion from here will require innovation in technology and companies capturing greater global market share. But that will require India Inc to aggressively kick-start a capex and R&D investment cycle. Till then, investors must contend with this brick wall.
While the relationship between corporate revenue growth and nominal GDP is not linear, they tend to track each other. In this context, while real GDP has been robust, the declining trend in nominal GDP growth must concern investors.
This is why the fundamental picture is a bit mixed. The domestic macros are appealing — low inflation, fiscal deficit discipline from the government and declining interest rates. But for earnings to grow consistently in double-digits for the next few years, either the Indian consumer or the Indian private sector has to spend and drive the economy. Or we need a huge influx of FDI or an export surge. In the absence of consistent double-digit earnings growth, current PE cannot sustain.
Sentiment
With valuations where they are, it is hard to argue that the sentiment is negative. But with 2025 not being a good year for the broader markets, and assets like gold and silver significantly outperforming equities, there is an increasing risk that the sentiment on equities can get impacted sometime probably in H1 of 2026, if the market momentum does not build from here. The positive sentiment that got seeded at the Covid lows of March-April 2020 from a combination of ultra-cheap valuation, zero to low single-digit interest rates and QE, backed with staunch fiscal stimulus, and has pole-vaulted through many brick walls on the way like the Russia-Ukraine war in 2022, the US and Europe bank failures, slowdown in domestic GDP and earnings etc, will have to prove it can pass the test of patience in 2026.
The above are just some of the factors that investors need to track. There are quite a few beyond this like the AI bubble and worsening geopolitics.
Factoring all these and making a prediction is hard, which is why the legend Warren Buffett, who retired on December 31, 2025, once said ‘We do not have, never have had, and never will have an opinion about where the stock market, interest rates, or business activity will be a year from now.’ He is one of the few to have triumphed over ‘The Great Humiliator’ without much embarrassment along the way.
This is possible only when we deal with markets on our own terms – which is buying only what we know and understand, and only when the stock is offered to you with a sufficient margin of safety. He once shared how, if he does not find anything attractive, he would be happy to park his money in short-term government bonds and keep rolling it over until he finds something attractive. Not a bad approach in the current scenario.
Wait for the right opportunities patiently. The focus must not be on making abnormal profits in 2026, but on making sound profits over the next five years.
Published on January 3, 2026
