Low Inflation Outlook for 2026
Due to declining food costs and RBI support, India's inflation is predicted to stay low in 2026 at 2-3%. By lowering interest rates, increasing corporate profitability, and increasing spending in the banking and consumer sectors, this helps the stock market.
MARKET NEWS
12/31/20251 min read
Forecasts for India's inflation in 2026 are generally in the 2–3.5% range, which will be aided by sustained policy support, decreased commodity costs, and soft food prices. A strong but moderate economic environment and an overall favourable outlook for Indian stocks are anticipated to be supported by this benign inflation backdrop.
Inflation Outlook for 2026
Citing significantly decreased food prices and lessening cost pressures, the Reserve Bank of India (RBI) lowered its CPI inflation forecast for FY 2025–2026 to roughly 2–2.6%, substantially below the midpoint of its 4% target. According to private forecasters like Crisil, FY26 inflation will only be a little higher—near 3.2%—while remaining well below the RBI's 2–6% range.
Retail inflation is at record or nearly record lows (around 0.25–0.7% in late 2025), according to recent data, highlighting a distinct disinflationary trend into 2026.
How Low Inflation Helps the Stock Market
Reduced borrowing costs: With inflation under control, the RBI has greater leeway to lower or maintain policy rates, which lowers borrowing costs for businesses and consumers. Industries like banking, automobiles, real estate, and capital goods often profit from lower credit and increased loan demand.
Better margins and demand: While increased purchasing power might increase consumption in industries like consumer durables, FMCG, and discretionary retail, slower input-cost increases (energy, commodities, logistics) boost corporate profit margins.
Market Sentiment and Valuations
Greater equity values are typically supported by stable, low-inflation environments because investors are willing to pay greater multiples when earnings visibility improves, and interest rates are not rising. Quality large caps and growth-oriented industries linked to domestic demand are frequently favored by this.
However, if inflation is too low for an extended period of time, it may indicate weak pricing power or slower nominal growth, which could limit earnings growth in some cyclical and commodity-linked firms, making stock selection more crucial.