UBS stated that although the market is currently supported by retail flow, it is important to monitor selling pressure from overseas investors and (increasingly) corporate capital-raising and IPO activities.
Unlike other larger markets, India does not have any stocks that directly benefit from artificial intelligence (AI). In the Indian environment, we favour banks and consumer staples among sectors," their analysts wrote.
Peers like Goldman Sachs, which upgraded Indian stocks to "overweight" with a Nifty goal of 29,000, and Morgan Stanley, which believes the Sensex will reach 100,000 by June 2026, take a very different view.
In contrast, MSCI India is up 3.9% year-to-date (YTD), underperforming EM by 33.6%. On an index-weighted basis, it is trading at a 48% premium (12-month future PE) to EM.

According to UBS's base scenario, the US-India trade agreement will come to pass, the extra 25% penalty will be removed, and the reciprocal tariff on India will be reduced to about 15% (closer to the levels of other Asian nations) by the end of December 2025.
Due to favourable policies and robust domestic demand, UBS predicted that India's real GDP growth would stabilise at 6.4% YoY in FY27 (10bps below consensus) and 6.5% in FY28. This would make India the fastest growing economy in the Asia Pacific (APAC) region in 2027, followed by the Philippines (GDP growth of 6.1%) and Indonesia (5.1%).

With a 7.9% CAGR, India's household spending nearly quadrupled over the previous ten years to reach $2.4 trillion in 2024, surpassing that of China, the US, and Germany. In a research coauthored with Nihal Kumar, Tanvee Gupta Jain, an economist at UBS, stated, "Our estimates show that India's consumer market is on track to become the third largest in the world in 2026, well before its GDP does by 2028."
According to UBS, GDP growth in the US is predicted to decelerate from 1.9% in 2025 to 1.7% in 2026 before picking up to 1.9% in 2027. According to the analysis, China's real GDP growth is expected to drop to 4.5% in 2026 (from 4.9% in 2025), primarily due to a reduced growth contribution from net exports.

Two-sided hazards
However, there are two-sided risks associated with UBS' growth prediction for India, especially with reference to the uncertainties surrounding US trade policy and India's policy reaction.
First off, GDP could be slowed by about 50 basis points (bps) in FY27 if the 50% trade tariff (with the penalty) continues. This would have a cascading effect on employment, consumption, and business confidence, as well as further hindering investment.
Second, according to UBS, a 25% tax on US corporations' payments to foreign outsourcing services may significantly slow India's GDP in FY27 by about 90 basis points.

In contrast, UBS predicted that consumer price inflation (CPI) would increase from 2.4% YoY in FY26 to 4.3% YoY in FY27 (mostly due to a base effect), albeit it would still fall short of the Reserve Bank of India's (RBI) 4.5% estimate. Before taking a lengthy break in FY27, UBS anticipates that the RBI would lower rates by an additional 25 basis points in the remaining months of FY26.