JP Morgan: If interest rate cuts and tax reductions are implemented, the Indian stock market is expected to reach 30,000 points by the end of 2026

JP Morgan predicts that driven by tax cuts and interest rate reductions, India's benchmark Nifty 50 index is expected to rise to 30,000 points by the end of 2026, an increase of about 15% from current levels.

The Indian stock market saw its strongest rebound in five months on Wednesday, with the Nifty 50 index soaring 1.24% to 26,205.3 points, marking the highest closing level in 14 months. The broad market rally was fueled by rising expectations of a Federal Reserve interest rate cut in December and optimistic sentiment regarding a potential rate cut by the Reserve Bank of India next week.

The BSE Sensex index also rose 1.21% to 86,609.51 points on the same day, ending a three-day losing streak. Both benchmark indices recorded their best single-day performance in five months, with closing levels just about 0.4% away from the historical high set in September 2024.

In its latest report, JP Morgan stated that the Reserve Bank of India is expected to cut rates by another 25 basis points in December, and recent tax cuts have begun to boost consumption, corporate debt growth, and automobile sales, all of which will collectively drive domestic demand growth.

JP Morgan maintains its preference for sectors focused on the Indian domestic market, believing that the US-India trade agreement could trigger a short-term revaluation. As India increases its oil imports from the US and reduces crude oil purchases from Russia, the likelihood of the US lifting the additional 25% tariffs on India is expected to rise.

Monetary and Fiscal Policies as Key Drivers

JP Morgan analysts Rajiv Batra and Rushit Mehta pointed out that the recent tax cuts leading to lower inflation and significant interest rate cuts by the central bank will boost domestic demand. The Reserve Bank of India is expected to cut rates by another 25 basis points at its December meeting, amplifying the positive impact of tax cuts on consumption.

Although the current valuation of the Indian stock market remains at a premium compared to other emerging markets, it has fallen below long-term averages after 14 months of underperformance. The investment bank believes that robust fiscal and monetary policies will provide strong support for the market.

The Nifty index has risen nearly 11% this year, but still lags behind the performance of its Asian and emerging market peers. This weak performance has ended the Indian stock market's strong run of over a year, during which the market was weighed down by weak earnings and continued foreign capital outflows.

Improved Trade Relations Expected to Boost Market Confidence

JP Morgan analysts believe that the likelihood of reaching a US-India trade agreement is high, which could trigger a short-term revaluation of the stock market. As India increases its oil imports from the US and reduces crude oil purchases from Russia, "the likelihood of the US imposing punitive tariffs on India is very high."

Once the additional 25% tariffs are lifted, it will enhance investor confidence, attract foreign capital inflows, support the rupee exchange rate, and help the IT and pharmaceutical sectors rebound. This policy shift will bring new upward momentum to the Indian stock market.

The investment bank expects that the improvement in trade relations will particularly benefit export-oriented industries, including information technology and pharmaceuticals, which have been under pressure due to trade uncertainties

Sector Allocation Favors Domestic Demand-Driven Industries

JP Morgan maintains an "overweight" rating on the materials, financial, consumer, hospital, real estate, defense, and power sectors, while maintaining an "underweight" rating on the IT and pharmaceutical sectors. The investment bank continues to favor sectors oriented towards the domestic market rather than export-oriented enterprises.

Analysts point out that industries benefiting from domestic consumption growth and infrastructure construction will perform better in the current macro environment. The financial sector will benefit from the interest rate cut cycle and the growth in corporate bond demand, while the consumer sector will directly benefit from tax reduction measures.

The real estate and infrastructure-related sectors are also viewed positively, expected to benefit from the government's ongoing infrastructure investment and urbanization process. The defense sector is supported by the government's increased defense spending and promotion of domestic policies