Indian stocks, especially the nation’s tech sector, will likely face turbulence in the first half of 2026, according to Amish Shah, a senior Bank of America Securities analyst.
Speaking this morning with CNBC, Shah said near-term events are stacked against investors, with the February 1st Union Budget likely to disappoint expectations for stimulus.
While foreign inflows could turn positive later in the year, the analyst cautioned H1 will be marked by fiscal constraints and political uncertainty – before a more favourable window opens post-May.
Why Union Budget could spark a market sell-off
Amish Shah sees the upcoming budget as a critical inflection point for Indian stocks. In the CNBC interview, he noted:
We don’t think that there is enough fiscal room to either do a capex stimulus or a consumption stimulus, which is both the stimulus that the markets are hoping for.
Without either measure, Shah believes the announcement will trigger a market sell-off next month.
Investors had been hoping for aggressive spending to support growth, but the government’s limited fiscal flexibility leaves little room for maneuver.
The absence of stimulus, combined with already cautious foreign institutional flows, sets the stage for volatility immediately after the budget.
What else could hurt Indian stocks in the first half of 2026
Beyond the union budget, Shah pointed to political developments as another headwind for Indian stocks in the months ahead.
Elections are scheduled in five states in May, including large contests in “Tamil Nadu” and “West Bengal” – alongside Kerala, Puducherry, and Assam.
According to the BofA analyst, governments tend to ramp up “populist measures” around election cycles, which “markets often don’t like.”
Together with fiscal caution, this populist spending may deter foreign investors, potentially leading to outflows. In short, sentiment will remain fragile as events are “set up against India” until May, Shah warned.
What may improve sentiment for Indian stocks post-May
Despite near-term challenges, the Bank of America expert sees a more “constructive environment” for Indian stocks after May.
“Post May, we think events and triggers for Indian markets start to turn favourable,” he noted.
Several factors could support stock price gains in the second half of 2026. These include potential Fed rate cuts and continued easing by the Reserve Bank of India (RBI).
Additionally, the long-awaited increase in central government employees’ pay commission, which occurs once every decade and boosts consumption, could boost markets in H2 as well.
Importantly, after the May elections, India faces no further state polls until February 2027, giving the government a “clean window to do reforms.”
Shah believes reforms could excite markets and lift valuations. “All of it is reason why FII flows should come back to India,” BofA’s head of India research, Amish Shah, concluded.
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