Global equity markets could see a traditional year-end “Santa Claus rally,” with India entering a more constructive phase in 2026 after a challenging year marked by weak earnings growth and heavy foreign investor outflows, according to market strategist Mark Matthews.

Speaking to CNBC-TV18, Matthews, Managing Director at Bank Julius Baer & Co, said the underperformance of Indian equities in the current year should be viewed as cyclical rather than structural. In his assessment, the combination of low earnings growth and sharp foreign institutional investor (FII) selling that weighed on Indian markets is now largely in the rear-view mirror.

Indian equities have lagged several global peers over the past year, despite relatively stable macro fundamentals. Matthews attributed this divergence primarily to single-digit earnings growth and sustained FII outflows, which dented sentiment even as domestic participation remained strong. He stressed that this phase was unusual for India, which has typically delivered double-digit earnings growth through most cycles.

Globally, markets have remained supported by robust US economic data and continued investor enthusiasm around artificial intelligence-led growth. Matthews noted that this backdrop has kept risk appetite intact, even as concerns around valuation and concentration in US mega-cap technology stocks persist.

Looking ahead, Matthews expects a meaningful recovery in India’s corporate earnings trajectory. He forecasts Nifty earnings growth of around 16–18 percent next year, driven by a low base effect and the lagged impact of earlier interest rate cuts and tax reductions. According to him, these policy measures are only now beginning to filter through to corporate profitability.

On flows, Matthews believes the heavy FII selling that characterised the past year is largely over. He argued that the outflows were driven less by concerns about India’s fundamentals and more by a temporary global reallocation towards China, as investors sought to rebuild exposure after years of underweight positioning. India, he noted, was the only emerging market where global investors were meaningfully overweight, making it the natural source of funds for that shift.

With this reallocation now largely complete, Matthews expects India to once again attract incremental foreign capital, particularly as investors look to diversify away from crowded US technology trades.

For Indian markets, the significance of Matthews’ view lies in the interaction between earnings recovery and capital flows. A return to mid-teen earnings growth would provide a firmer fundamental anchor for valuations, while a slowdown or reversal in FII selling could improve market breadth beyond domestically driven segments.

At a global level, Matthews said there is little in the current news flow to derail a year-end Santa Claus rally. He pointed to strong US macro data, including third-quarter GDP growth of 4.3 percent, as evidence that the world’s largest economy remains resilient. He also believes the artificial intelligence-led technology bull market is regaining momentum after a period of consolidation.

Drawing on historical parallels, Matthews said the current market phase feels closer to 1997 or 1998 rather than the peak of the dot-com bubble in 2000. The implication is that, while valuations are elevated in pockets, the broader cycle may still have room to run rather than being at an outright speculative extreme.

On the Indian information technology sector, Matthews acknowledged that underperformance over the past year reflected concerns around potential disruption from artificial intelligence and indirect fallout from trade frictions between India and the United States. However, he remains constructive, arguing that the scale of global investment in AI is too large to slow meaningfully.

In his view, Indian IT companies are likely to adapt by repositioning themselves within the evolving technology ecosystem, rather than being structurally displaced. He added that the sector appears to have bottomed a few months ago, suggesting limited downside from current levels if earnings stabilise.

Matthews also shared a more cautious near-term view on gold. He said prices currently appear parabolic, a pattern that historically has often preceded sharp corrections. While his instinct is to trim exposure at these levels, he remains structurally bullish over the long term.

He argued that the fundamental driver for higher gold prices is persistent fiscal indiscipline across developed economies. Highlighting the US debt-to-GDP ratio of around 120 percent roughly double what the International Monetary Fund considers prudent Matthews said similar fiscal pressures are evident across Europe and Japan, gradually eroding confidence in fiat currencies.