HDFC Securities says that in 2026 Rs. 2.5 lakh crore IPO boom could create ‘liquidity drain’; Pegging the Nifty at 28,720

The Indian equity market is facing an unusual paradox in 2026. On the one hand, there is growing optimism around growth, earnings recovery and policy support. On the other hand, a flood of new listings threatens to increase liquidity and test investor appetite. According to HDFC Securities, the coming year could well be defined by how markets navigate this delicate balance.

The most immediate challenge is the sheer scale of the IPO pipeline. More than 190 companies are expected to tap the primary market in 2026, collectively worth Rs. Wants to raise more than 2.5 lakh crore. Such a heavy issue calendar raises a fundamental question: Will the IPO rush kill the goose that laid the golden eggs? HDFC Securities flagged the risk of a “liquidity drain” in the secondary market as capital is diverted to new listings. Investor funds absorbed by fresh paper, trading activity and price discovery in listed stocks may come under pressure.

The uncertainty surrounding the inflow of foreign investors adds to this concern. Even after meaningful consolidation in 2025, Indian equities continue to trade at a premium to other emerging markets like China and Brazil. Foreign institutional investors are expected to invest around Rs. 3 lakh crore was withdrawn. While there is hope that the flow may stabilize or even reverse in 2026, HDFC Securities cautions that several factors may still sideline foreign capital.

That said, the broader global and domestic backdrop provides reasons for guarded optimism. Global trade uncertainty is expected to gradually ease, helped by easing geopolitical tensions and the possibility of tariff reversal. Trump’s trade policies, a major source of disruption, are expected to further diminish as a dominant influence on the global economy. “A rotation of emerging markets is expected, with India being the main beneficiary,” it added.

Within this framework, an emerging market rotation is expected, with India seen as a key beneficiary. China’s GDP growth is expected to remain stable, while crude oil prices are likely to remain low, easing pressures on inflation and the external balance. Continued demand for gold from central bankers is expected to keep the metal bullish through 2026, reflecting lingering caution even as growth stagnates.

India’s domestic macro story is the main pillar of HDFC Securities’ outlook. Rate cuts, CRR cuts and liquidity infusion are part of this supportive policy mix. Structural domestic demand and increasing allocation of household savings towards equity continue to provide a strong internal cushion, possibly reducing reliance on foreign flows.

Digital infrastructure improvements and rapid digitization of payments are also highlighted as structural positives, creating new economic opportunities and increasing efficiency in all sectors. Against this backdrop, nominal GDP growth is expected to enter double digits in 2026, setting the stage for earnings recovery after a challenging period.

From a market perspective, valuations have improved meaningfully, and foreign portfolio investor exposure is at historically low levels. These factors together create upside potential if sentiment turns. HDFC Securities expects India’s markets to deliver a “Goldilocks” result, characterized by a broad-based recovery. Industrial metals are expected to shine, reflecting an improvement in global demand, while the rupee is expected to remain flat.

For FY27, Nifty earnings are expected to rise 16%, which translates to an expected annualized return of around 11% for the index, pegged to an annual Nifty target of 28,720.

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