BofA sees better setup for India equities in 2026; autos, pharma in focus

Indian equities could see a better setup in 2026 after a difficult 2025, as earnings expectations have cooled and valuations have turned more reasonable, according to Amish Shah, Head–India Research, BofA Global Research. Shah said last year’s excesses have largely corrected, stating, “Same time last year, markets were looking expensive. Earnings growth expectations from the consensus were quite lofty.”With downgrades already factored in, Shah said earnings expectations are now more realistic. “So, I think earnings expectations are now sensible, and earnings growth we think is going to accelerate,” he said. Shah also sees scope for foreign flows to stabilise, adding, “Logically, foreign institutional investor (FII) outflow should at least become zero next year, possibly could also be inflows.”

In the automobile sector, Gunjan Prithyani said growth momentum following the goods and services tax (GST) rate cuts appears sustainable, though stock-level opportunities are becoming more selective. She pointed out that registrations have risen meaningfully across segments, stating, “So clearly there has been acceleration in growth, and it’s holding on.”Also Read: India’s current account stress may be over, but rupee weakness could continue
While much of the positive news is already priced into passenger vehicle and two-wheeler stocks, Prithyani believes commercial vehicles offer better risk-reward. “That’s the segment probably to watch out for from a next year’s perspective, where expectations are still relatively reasonable, and we are starting to see a little bit of inflexion in that space,” she said.

For pharmaceuticals, Neha Manpuria, Senior Analyst, BofA Global Research, said currency moves are not the primary driver of stock performance. Instead, investors are focused on sub-segment-specific factors such as the patent cliff facing large US generics players and the stronger visibility in the Contract Development and Manufacturing Organisation (CDMO) space.

While large-cap pharma companies work to fill earnings gaps from loss of exclusivity, Manpuria said CDMOs are benefiting from structural tailwinds, including supply-chain diversification and global policy shifts, making the segment a key area of interest within the sector.

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