JPMorgan: If rate cuts and tax reductions are implemented, India's stock market is expected to reach 30,000 points by the end of 2026.

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JPMorgan predicts that driven by tax cuts and interest rate cuts, India’s benchmark Nifty 50 Index is expected to climb to 30,000 points by the end of 2026, up about 15% from its current level.

On Wednesday, the Indian stock market had its strongest rebound in five months, with the Nifty 50 Index soaring 1.24% to 26,205.3 points, marking the highest closing level in 14 months. The broad market rally was fueled by expectations of a Fed rate cut in December and optimism about the possibility of a rate cut by the Reserve Bank of India next week.

The BSE Sensex Index rose 1.21% the same day to 86,609.51 points, ending a three-day losing streak. Both benchmark indices recorded their best single-day performance in five months, with closing levels only about 0.4% away from the record highs set in September 2024.

In its latest report, JPMorgan stated that the Reserve Bank of India is expected to cut rates by another 25 basis points in December, and recent tax cuts have begun to boost consumption, corporate debt growth, and auto sales. These factors together will drive domestic demand growth.

JPMorgan maintains its preference for Indian domestic market-oriented sectors, believing that a US-India trade agreement may trigger a short-term revaluation. As India increases oil imports from the US and reduces crude purchases from Russia, the additional 25% US tariffs on India are expected to be lifted.

Monetary and fiscal policies are key drivers

JPMorgan analysts Rajiv Batra and Rushit Mehta pointed out that recent tax cuts have led to lower inflation, and substantial rate cuts by the central bank will boost domestic demand. The Reserve Bank of India is expected to cut rates again by 25 basis points at its December meeting, which will amplify the positive impact of tax cuts on consumption.

Although Indian stock market valuations remain at a premium compared to other emerging markets, after 14 months of lackluster performance, valuations have dropped below long-term averages. The investment bank believes that sound fiscal and monetary policies will provide strong support for the market.

So far this year, the Nifty Index has risen nearly 11% but still lags behind its Asian and emerging market peers. This weak performance ends the previous strong run of the Indian stock market that lasted over a year, a period marked by earnings weakness and sustained foreign capital outflows.

Improved trade relations may boost market confidence

JPMorgan analysts believe there is a high probability of a US-India trade agreement being reached, which could trigger a short-term revaluation of the stock market. As India increases oil imports from the US and reduces crude purchases from Russia, the probability of "the US imposing punitive tariffs on India being removed" is high.

Once the additional 25% tariff is canceled, investor confidence will be strengthened, attracting foreign capital inflows, supporting the rupee exchange rate, and helping the IT and pharmaceutical sectors rebound. This policy shift will bring new upward momentum to Indian stocks.

The investment bank expects that improved trade relations will especially benefit export-oriented industries, including IT and pharmaceuticals, which have previously been under pressure due to trade uncertainties.

Sector allocation favors domestic demand-driven industries

JPMorgan maintains "overweight" ratings on materials, finance, consumer, hospitals, real estate, defense, and power sectors, while maintaining an "underweight" stance on IT and pharmaceuticals. The bank continues to be optimistic about sectors oriented toward the domestic market rather than export-oriented companies.

Analysts note that in the current macro environment, industries benefiting from domestic consumption growth and infrastructure development will perform better. The financial sector will benefit from the rate-cut cycle and rising corporate debt demand, while the consumer sector will directly benefit from tax cuts.

Real estate and infrastructure-related sectors are also favored and are expected to benefit from continued government investment in infrastructure and urbanization. The defense sector is supported by increased government defense spending and policies promoting domestic production.

Risk disclaimer and limitation of liabilityThe market involves risks, and investment requires caution. This article does not constitute personal investment advice nor does it take into account the specific investment objectives, financial circumstances or needs of individual users. Users should consider whether any opinions, views or conclusions contained herein are suitable for their particular situation. Investment decisions are at your own risk. ```