Kotak Securities, in its Market Outlook 2026 report, has set a base-case target for the Nifty 50 Index at 29,120 by December 2026, citing expectations of strong earnings growth over the next three financial years. The brokerage forecasts Nifty profits to increase by 8.2% in FY26, 17.6% in FY27, and 14.8% in FY28. Additionally, in alternative scenarios, Kotak projects a bull-case target of 32,032 and a bear-case target of 26,208.
With continuing Foreign Portfolio Investor (FPI) outflows, the report emphasizes that domestic investor sentiment will be crucial in shaping market direction in the near term.
Earnings Performance Exceeds Expectations in Q2FY26
According to Kotak Securities, earnings for Q2FY26 surpassed estimates, with adjusted net profits of the Nifty-50 Index rising 2.6% year-over-year, compared to a prior projection of 0.3% growth. Adjusted EBITDA also reflected a strong 6.7% increase, exceeding expectations. Broader Nifty 500 companies recorded modest revenue growth of 6%, but showed double-digit increases in EBITDA and profit after tax (PAT).
Sectoral Trends Exhibit Mixed Performance but Improving Outlook
Profit growth was led by sectors such as cement, diversified financials, electronic manufacturing services, metals and mining, oil and gas, consumable fuels, and telecommunications. The automobile sector experienced modest domestic volume growth but continued to grapple with margin pressures. While banks saw moderate credit growth, net interest margins improved. Capital goods companies registered healthier orders, although consumer firms faced weak volume trends. IT services showed signs of demand stabilization, while pharmaceuticals reported moderate growth. Real estate companies, however, delivered strong year-on-year revenue and volume results. Overall, Kotak noted an improved earnings outlook for large- and mid-cap stocks over the past two months, with earnings appearing generally stable.
Inflation Remains Within RBI’s Comfort Zone
The brokerage reported that the Consumer Price Index (CPI) inflation for October 2025 dropped sharply to 0.25%, largely due to declining food prices and GST rate reductions. Although core inflation rose to 4.4%, the Reserve Bank of India’s (RBI) cumulative 125-basis-point rate cuts have lowered the policy rate to 5.25%, fostering greater consumption and investment. Kotak forecasts an average CPI inflation of 2.1% for FY26 and anticipates core inflation to average 4.3%. Furthermore, it predicts overall inflation will return to about 4% by early FY27 as food inflation normalizes.
Robust GDP Growth Outlook
Real GDP growth accelerated to 8.2% year-on-year in Q2FY26, bolstered by a favorable deflator along with strong private consumption and investment. Nominal GDP expanded by 8.7%, consistent with previous trends. Growth was primarily driven by sectors like financial services and real estate, with the industrial sector benefiting from robust performance in manufacturing and construction. Kotak estimates real GDP growth for FY26 at 7.8%, tapering to 6.5% in FY27 as base effects diminish.
Concerns About US Tariffs on Indian Exports
The report warns that elevated US import tariffs on Indian goods continue to impact outbound shipments, with exports to the US declining by 12% in September 2025. However, exports to other regions increased by 11%, mitigating the overall negative impact. Goods exports face challenges due to reciprocal tariff measures and weak global demand, though service exports have remained resilient. Kotak anticipates a Current Account Deficit (CAD) to GDP ratio of 1.3% for FY26, sustained by robust remittances and stable services receipts.
In conclusion, Kotak Securities perceives India as entering 2026 on strong economic footing, driven by manageable inflation, improving corporate profitability, and solid domestic demand. However, the report advises caution regarding global uncertainties, export-related challenges, and valuation sensitivities, highlighting the need for disciplined stock selection. The brokerage maintains an optimistic outlook, with its Nifty target of 29,120 representing confidence in the market’s medium-term earnings prospects.
Published on December 10, 2025.
