Franklin Templeton MF sees broader global opportunities, steady India growth outlook for 2026

Franklin Templeton Asset Management (India) expects India’s growth trajectory to remain resilient in 2026 despite ongoing global uncertainty, supported by easing monetary conditions, moderating inflation and improving valuation comfort across asset classes.

In its annual outlook released on January 2, the fund house said 2025 tested investor conviction amid geopolitical tensions and uneven global growth, but India continued to demonstrate structural strength.

Progress in digital inclusion, infrastructure development, domestic capital formation and the emergence of GIFT City as a financial gateway helped anchor the country’s long-term fundamentals, it said.

According to Franklin Templeton, Indian equities are on track to close higher for a tenth consecutive calendar year, provided markets remain stable through year-end. Large-cap stocks outperformed mid- and small-cap segments in 2025, while overall market valuations became less demanding compared with the previous year.

Global investment themes for 2026

Franklin Templeton Institute outlined three cyclical themes shaping its 2026 global investment view—broadening, steepening and weakening.

The institute said investment opportunities are expanding beyond the US as profit growth improves across regions and asset classes. It expects yield curves to steepen as falling short-term interest rates encourage a shift from cash to equities, credit and longer-duration fixed income. A weaker US dollar, in its view, could support emerging market equities and debt while influencing portfolio allocation strategies.

Within this framework, the institute sees emerging markets, European equities and US small-cap stocks as potential leaders in 2026, while US equities, including the information technology sector, may continue to deliver steady returns.

In private markets, Franklin Templeton identified commercial real estate debt, infrastructure assets and secondary private equity offerings as preferred segments. Over the longer term, it said innovation—particularly in technology and digital finance—remains a key driver of investment returns, even as expanding government intervention poses risks to capital markets.

India outlook: growth, inflation and policy

For India, the fund house projects GDP growth of 7.3% in FY26, with inflation expected to remain subdued at around 2% before edging higher within the Reserve Bank of India’s tolerance band in early FY27.

In fixed income, Franklin Templeton noted that the RBI delivered cumulative repo rate cuts of 125 basis points in 2025, helping ease financial conditions. While bond yields declined during the year and the yield curve has begun to steepen, the firm sees limited scope for additional rate cuts in 2026, particularly if economic growth aligns with official projections.

The firm said sectors such as financials, consumption, real estate, IT services and capital goods could offer selective opportunities in the year ahead, while reiterating the importance of disciplined, long-term investing as markets adjust to shifting global and domestic conditions.