After a tense and largely flat 2025, Indian equity investors may finally have something to look forward to. In its latest outlook, ICICI Securities has painted an optimistic picture for 2026, projecting a strong recovery across large and small-cap stocks, powered by earnings growth, government-led consumption push, and rising retail participation.
The brokerage expects the BSE Sensex to climb to 98,500 and the Nifty 50 to reach 29,500 by 2026—levels that would mark a fresh phase of wealth creation after two years of uneven returns.
The big targets: Sensex 98,500, Nifty 29,500
According to ICICI Securities, the core driver behind this bullish call is earnings. The firm expects corporate profits to grow at a steady 15% annually between FY26 and FY28. What’s also changed, it says, is the quality of index constituents. Slower-growing companies are gradually being replaced by structurally stronger, faster-growing businesses, allowing markets to justify higher valuation multiples than in the past.
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In simple terms, the index today looks healthier than it did a decade ago—and that matters when markets are aiming higher.
Why small-caps may finally turn the corner
One of the most striking takeaways from the report is the statistical case for small-cap stocks. ICICI Securities notes that, over the last 20 years, small-caps have only a 14% probability of delivering negative returns for two consecutive years. Since 2025 ended in the red for this segment, history suggests an 86% chance of a rebound in 2026.
Valuations also look far more reasonable. The price-to-earnings premium of small-caps over the Nifty has cooled to just 4%, well below the long-term average of 11%, making the risk-reward equation more attractive than it was during the frothy phase of 2023–24.
The Rs 2 lakh crore consumption push
A major pillar of the brokerage’s thesis is the upcoming 8th Pay Commission. ICICI Securities estimates a payout of nearly Rs 2 lakh crore, benefiting around 50 lakh central government employees and 69 lakh pensioners.
This kind of money, when it hits household budgets, usually finds its way into spending. The brokerage expects a 3–4% boost to industry growth, with auto and two-wheeler sales emerging as key beneficiaries as disposable incomes rise.
India’s ‘perfect trilogy’ moment
On the macro front, ICICI Securities believes India is entering a rare sweet spot—what it calls a “perfect trilogy” of low inflation, falling interest rates, and steady GDP growth. Inflation is expected to average around 2.1%, while rate cuts totalling 125 basis points are already in place.
Add to that the government’s infrastructure push—nearly 60% of the capex target achieved by late 2025—and the investment cycle appears well supported.
Retail investors and the long J-curve
Retail participation continues to be a structural tailwind. ICICI Securities expects the number of mutual fund investors to surge from 4 crore to 14 crore in the coming years. Monthly SIP inflows could touch Rs 40,000 crore, translating into nearly Rs 5 lakh crore of fresh equity investments annually.
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Beyond equities, the brokerage also flags a massive shift in household wealth, with India’s real estate market projected to triple in size by 2030 as urbanisation accelerates.
Risks that still need watching
Despite the optimism, the brokerage isn’t ignoring the risks. Foreign institutional investors pulled out $17.8 billion in 2025, and FII flows remain a potential source of volatility. The IT sector still faces uncertainty around AI-led disruption and global visa policies, though ICICI Securities believes valuations there have largely bottomed out.
Delays in large infrastructure projects or unexpected stress in lenders such as Bank of Baroda or Bajaj Finance could also slow the recovery if they crop up.
The bottom line
ICICI Securities sees 2026 as the year when earnings finally catch up with expectations. With retail money flowing in, consumption getting a government-led boost, and valuations turning reasonable across segments, the brokerage believes the foundation is in place for a broader, more durable market recovery.
For investors bruised by the stop-start nature of the last two years, that’s a narrative worth paying attention to.
