The broader macro backdrop for Indian equities remains stable heading into 2026, supported by healthier corporate balance sheets and early signs of an earnings recovery across sectors, according to ICICI Prudential Alternate Investments. However, after a long market upcycle and widespread rerating, much of the optimism on growth and profits is already reflected in stock valuations, the report cautioned.In its report titled “Outlook 2026: Beyond Narratives”, ICICI Prudential said that while the opportunity set in Indian equities continues to look attractive, market returns are likely to be more moderate going forward.It added that broad, index-led gains may give way to outcomes driven by selective stock picking rather than sweeping macro narratives.“After an extended market cycle and a rerating across many parts of the market, much of this macro and earnings optimism is already reflected in valuations,” the report said, adding that execution and company-specific fundamentals are expected to matter more than themes. “We believe going ahead, execution is likely to trump narratives, and disciplined micro research is likely to outweigh broad macro views,” it noted.Looking at the wider economy, the report said India appears to be in “good shape” as it moves deeper into the 21st century. A favourable demographic profile, with a large working-age population entering the labour force, places India in a stronger position compared with economies grappling with ageing populations.While foreign capital inflows have been lower than historical levels, the report said India’s growth prospects could still attract overseas investors over time. It also pointed out that the government’s fiscal position is on a consolidation path.Corporate financials have strengthened notably, with operating cash flows, profit after tax and investing cash flows growing at compound annual rates of 18 per cent, 15 per cent and 14 per cent respectively between FY19 and FY25, compared with single-digit growth in the earlier period, as per news agency ANI.The report also sees scope for faster economic growth alongside a normalisation in inflation. It added that improvements in geopolitics and trade ties with major partners such as the US, China and Europe could act as catalysts, potentially boosting sentiment and positioning India favourably in emerging global supply chains.