The external pressures from oil, a strong dollar and global risk-off remain the near-term watch points for India in the coming year, though structural drivers stay intact.
According to BlackRock’s 2026 Global Outlook, Pushing Limits, Indian equities have lagged global and emerging market peers this year amid some signs of moderating growth, renewed geopolitical frictions with the US and foreign flows rotating toward markets more directly linked to the AI theme, such as South Korea and Taiwan.
Regulatory squeeze
Domestic derivatives activity also cooled after SEBI’s regulatory tightening. This follows a strong multi-year run: Indian equities have returned nearly 80 per cent in US dollar terms over five years, ahead of global equities and broader emerging markets.
India’s forward price-to-earnings ratio remains above emerging markets averages, but is supported by India’s stronger nominal growth outlook, it said.
“We estimate India’s equity risk premium, our preferred valuation gauge since it considers both earnings growth expectations and prevailing interest rates, to be about 4.3 per cent, close to its long-term average,” said the report.
Indian equities constitute roughly 1.7 per cent of the MSCI ACWI index, even as the economy accounts for about 7 per cent of global GDP. India’s improving macro stability and credit quality offer income and diversification at a time when developed market bonds provide less ballast, it said.
Real Profits
Ben Powell, Chief Middle East and APAC Investment Strategist, BlackRock Investment Institute, said, Unlike the 1990s tech bubble, leading AI-linked companies are making a huge amount of money and consistently surprising markets with robust revenues, cash flow and earnings. “These are real companies making amazing amounts of money. We can debate valuation for sure, but there’s definitely something here,” he said.
Powell added that the momentum story behind AI remains intact, with BlackRock expecting earnings strength to continue into 2026. While US mega tech stocks remain central to the theme, the opportunities are now broader and more global, he added.
However, he said the AI buildout in the US faces many constraints involving compute and energy, with energy the most binding now.
AI data centres could use 15-20 per cent of current US electricity demand by 2030 – a scale sure to test the limits of power grid, fossil and materials industries.
BlackRock has a bearish view on long-term US Treasuries, warning that a coming wave of AI-related financing could put upward pressure on US borrowing costs and exacerbate worries over US government indebtedness.
Published on December 4, 2025
