how will the market beImage Credit source: AI
Despite all the global tensions, the Indian stock market remained strong in the year 2025. Despite all the ups and downs, the market’s main index Sensex closed this year with a gain of about 8 percent, which is only about 1 percent below its all-time high. In such a situation, it is natural for investors to have this question that what will be the trend of the stock market in the coming time i.e. in the year 2026? The direction of the market in the coming year will depend on the answers to some big questions. These questions will be important. Let us tell about them in detail.
Will the AI enthusiasm last?
There is a story in every bull market that gives dreams to investors. Sometimes there was a craze for IT services, sometimes for infrastructure and sometimes for commodities. Its craze is still there, but in recent times AI has gone ahead of all these. There is a perception about AI that it will change the way business is done. Shares of AI related sectors like chip manufacturing companies, data centres, cloud and advanced software have gone up rapidly. The valuation of these companies is based on the hope that AI will earn on a large scale in the coming times, but the question is whether these expectations will be able to materialize? If there is weakness in any link, or companies are not able to show profits as promised, then the shock can be sharp.
Stock market trend?
Between 2020 and 2024, almost every stock was seen rising. The difference between good and bad started decreasing, but a change was seen in 2025. Now every stock is not rising. Many weak or expensive stocks have started being left behind. Today the situation is such that only about one-third of the shares of listed companies have gone up in a year. This means that investors are now investing their money wisely. The interesting thing is that Sensex has again reached near its upper levels. At the same time, midcap and smallcap shares are still below their old highs. This difference shows that the market is now giving priority to quality.
Will foreign investors return again?
Today the Indian market is not cheap. Large companies are already trading at high PE and mid-smallcaps are even more expensive. In such a situation, the decision is not easy for foreign investors. In the last few years, FPIs have been continuously selling Indian shares. Global interest rates, strength of dollar and attractive opportunities in other markets have been the main reasons for this. In contrast, domestic mutual funds have been continuously infusing money into Indian stocks. The question is, will the picture change in 2026? If the dollar weakens, US interest rates fall and India’s earnings remain strong, then foreign money can come back. But if this does not happen, then the market will have to rely on domestic investors.
Will retail investor confidence continue?
In the last few years, retail investors have become the backbone of the market. Lakhs of people are investing every month through SIP. The number of investors in mutual funds is at a record level. But in 2025, a slight fatigue was also visible. The pace of opening of new demat accounts has slowed down. There are many accounts in which no transaction has taken place for a long time. If the market remains flat for a long time or there is a slight decline, it will be important to see whether retail investors remain patient or start withdrawing money. If the mood of retail changes, the movement of the market can also change.
Will the IPO excitement continue?
Bullish market is considered the best time for IPO. In the last few years, many companies came into the stock market at high valuations. But if there is less money in the market or investors become cautious, then it will not be easy for new companies to raise funds. The IPO market in 2026 will give a clear indication of how strong the confidence of investors is. If demand weakens, both the number of IPOs and their price will be affected.
2026 will not be as easy for the Indian stock market as the last few years have been. Now the market would like to see the results, not the story. The balance of earnings, valuation and investor confidence will decide the direction.
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