Equities Outlook — Q1 FY 2026-27
Our Q1 FY26-27 outlook on Indian equities is Cautious (bordering Neutral) domestically and Cautious globally. Valuations have moderated but broader markets remain elevated; earnings growth is stable; the global long-term debt cycle keeps us disciplined.
Executive Summary
Our Outlook: Cautious, Bordering on Neutral.
As we enter the new financial year, our outlook for Indian equities is guided by three key factors: Valuations and Earnings Growth, which form our Domestic Outlook, and the Long-Term Debt Cycle, which determines the Global Outlook. Together, these indicators help us assess the balance between risks and opportunities and set our overall positioning.
Valuations: Cautious to Neutral
Valuations have moderated following recent corrections, with large caps closer to long-term averages while broader markets remain relatively elevated. This suggests improving risk-reward, though not yet compelling for aggressive positioning.
Earnings Growth: Neutral to Positive
Corporate earnings growth remains stable, supported by domestic demand and improving balance sheets. This provides support to markets, though further valuation comfort is needed for stronger upside.
Global Long-Term Debt Cycle: Cautious
Global economies appear to be in the later phase of the long-term debt cycle, typically associated with moderate returns and higher volatility. This supports a disciplined and gradual approach to equity allocation.
Annexure C — Long-Term Debt Cycle Framework
The Long-Term Debt Cycle, as proposed by Ray Dalio, explains how economies move through multi-decade cycles driven by debt, growth and interest rates. These cycles also tend to influence social order, political stability and market returns.
This framework can be broadly simplified into three key phases:
1. Debt Accumulation Phase
- Debt builds gradually and growth remains strong
- Asset prices rise and valuations expand
- Stable social environment with rising optimism
2. Deleveraging Phase
- Debt becomes elevated and growth slows
- Market volatility increases and policy intervention rises
- Rising inequality and social friction
3. Reflation Phase
- Policy easing and liquidity improves
- Growth stabilises and markets recover
- Gradual return in social confidence
Where We Are Today
Global economies appear to be at the brink of the deleveraging phase, characterised by elevated global debt levels, moderating growth, increasing volatility and social and geopolitical instability. This backdrop supports a cautious stance, with emphasis on disciplined asset allocation and gradual deployment.