As we enter the final quarter of 2025, I am more optimistic about the Indian equity market than at any point earlier this year. Each quarter of 2025 has brought a new challenge for investors. The first quarter was marked by panic following the US administration’s announcement of steep tariffs. By the second quarter, markets rallied on expectations that President Trump might soften his stance. That hope faded in Q3, when not only were the 25% tariffs confirmed but India faced an additional 25% tariff—ostensibly due to its crude oil and defence purchases from Russia.

This has pushed India–US relations to one of their lowest points in recent years. The H1B visa issue in September further underscored the US attempt to pressure India into concessions. The sanctioning of Iran’s Chabahar port, where India has strategic interests, and the new Pakistan–Saudi defence pact have added to regional uncertainty. India’s External Affairs Minister S. Jaishankar has already signalled that no common ground has been reached on tariffs, and Finance Minister Nirmala Sitharaman has indirectly criticised the US stance. Clearly, the short-term outlook on tariffs remains clouded. That said, geopolitics can shift rapidly—if Washington recognises India’s role in global supply chains and security, relations could improve just as quickly.

I do not expect a complete tariff resolution within 2025. However, the Indian government and the Reserve Bank of India (RBI) are working to soften the blow. Recent GST reforms have streamlined compliance and reduced rates in several sectors, while the RBI has infused liquidity, eased lending norms against shares and IPOs, and signalled one more rate cut before year-end. These measures indicate a coordinated effort to insulate India from global headwinds while strengthening domestic growth drivers.

The Legal Overhang on US Tariffs

One factor overlooked by markets is the legal challenge to the tariffs. The matter is pending before the US Supreme Court, with a verdict expected between December 2025 and June 2026. Separately, President Trump’s failed attempt to dismiss Fed Governor Lisa Cook shows that US institutions can act as a check on executive overreach. If similar pushbacks occur, it could temper policy volatility and improve global investor sentiment.

Mixed Global Geopolitics

Globally, risks remain. While tentative progress has been seen in the Israel–Hamas conflict, Russia’s increasingly aggressive posture toward the EU raises concerns. Any escalation could disrupt energy markets and dent global growth. So far, however, the world economy has displayed surprising resilience to geopolitical shocks.

Nifty Earnings Outlook: FY2027 Growth at 18%

Despite upward revisions to India’s FY2026 GDP forecast by both the RBI and Fitch, the September quarter earnings are unlikely to be strong. The reasons are clear: the tariff impact on exporters, heavy rainfall in northwestern India disrupting activity, and demand deferrals due to GST rationalisation.

However, the second half of FY2026 looks far more promising. The tailwinds are significant—GST simplification, direct tax rebates, a third consecutive year of good monsoons, and expected rate cuts. Together, these should provide a meaningful boost to corporate earnings. Current estimates suggest Nifty 50 earnings could grow by around 18% in FY2027. Even without any expansion in valuation multiples, this points to an 18% upside in the index over the next year. Given the muted returns of the past 12 months, such a rally could also reignite retail and institutional interest.

Strategy for Investors

In a volatile global environment, the most compelling opportunity remains India’s domestic growth story. Themes tied to consumption, infrastructure, and financial services should deliver steady returns with limited downside. Valuations have corrected to more reasonable levels, and a potential shift of foreign portfolio flows from China to India could add further momentum.

Overall, I am more bullish on India today than I was a year ago. The combination of reform-driven resilience, improving macro fundamentals, and supportive domestic demand makes a strong case for Indian equities to deliver close to 18% returns over the next 12 months.