Nifty is projected to touch 29,000 next year, supported by a recovery in discretionary consumption in the second half of current fiscal (FY26), easing liquidity infusion by the Reserve Bank of India, a report showed on Thursday.

The report from Emkay Global Financial Services said that a mixed capex cycle and hopes for an India‑US trade deal are other supporting factors.

The financial services firm said that GST reforms and structural boosts to affordability should revive consumption and support a medium‑term growth cycle.

The firm remains overweight on discretionary, industrials, healthcare and materials and underweight on financials, staples, IT and telecom.

"A softer rate environment and stable policy direction provides a favourable setup for India’s medium-term growth cycle," the report said.

The firm also expected healthy rainfall to aid income and consumption recovery, supported by an additional tailwind from FY26 Union Budget tax cuts.

“India’s medium-term outlook remains remarkably resilient. Despite near-term volatility, the alignment of softer rates, improving consumption and stable policy direction creates a strong foundation for the country’s multi-year growth cycle, positioning the Nifty for meaningful upside through 2026,” said Nirav Sheth, CEO-Institutional Equities, Emkay Global.

The 2026 outlook also factored in the RBI’s liquidity infusion which is expected to reduce borrowing costs and aid credit transmission, particularly for retail-focused lenders and NBFCs.

While corporate capex remains moderate, government-related spending in railways, defence and power continues to provide visibility.

The report highlighted that although large-caps provide wealth protection in volatile markets, small and mid-cap stocks provide alpha returns.

“Unlike the Nifty which has more low-P/E sectors like financials and energy, the SMID universe focuses more toward higher-growth businesses, which naturally command richer valuations," said Seshadri Sen, Head of Research and Strategist, Emkay Global.

The domestic mutual fund inflows continue to remain robust, even as FPIs have remained net sellers with outflows of Rs 271 billion year-to-date. Meanwhile, the primary market remains active, with total issuances reaching Rs 1,769 billion so far this year.