After a year of steady consolidation, the Indian market is set for a different kind of 2026 – one driven more by company earnings than by fancy price multiples.
2025: A Calm Reset
2025 wasn’t a crash; it was a pause after two strong years. The Nifty closed the year with modest gains, giving investors a chance to catch their breath.
What to Expect in 2026
Going forward, the market’s performance will likely mirror earnings growth. If India’s GDP keeps growing in the low double‑digits, the Nifty should follow earnings trends with less volatility than many global markets.
Mid‑Cap and Small‑Cap Outlook
These segments lagged behind in 2025, but the dip reflects a correction, not a collapse. Success will hinge on picking firms that are well‑capitalised, have pricing power, and carry strong balance sheets. Broad, market‑wide rallies like the last cycle are unlikely, so investors should expect higher dispersion.
IT Sector: Value in Transition
Tech valuations have dropped, but earnings visibility is mixed. The industry is shifting from short‑term cyclical pressure to a longer‑term reset driven by AI, cloud‑optimization and vendor consolidation. Value opportunities are appearing, but they’re more of a medium‑term play than a quick bounce.
Positive Sectors for 2026
- Domestic cyclicals linked to capital expenditure, manufacturing and infrastructure.
- Financials with solid liability franchises that can compound steadily.
- Emerging themes such as power, defence manufacturing, and select digital‑infrastructure projects.
Why Domestic and Foreign Investors Behave Differently
Foreign investors (FIIs) react to global cues like U.S. rates and currency moves. Domestic investors (DIIs) are more influenced by India’s own savings shift, providing a buffer during global risk‑off phases and reducing market fragility.
Macro View and Risks
India’s macro fundamentals remain strong: growth is stable, inflation is contained, and external balances are manageable. Main risks are global shocks, supply‑chain disruptions and uneven private‑sector capex recovery.
What to Watch from the 2026 Union Budget
Expect continuity rather than surprise. The government will likely aim for fiscal consolidation while keeping growth alive, maintaining public capex, and offering targeted support to manufacturing and job creation. Execution discipline will matter more than headline announcements.
Takeaway for Retail Investors
Focus on earnings quality, pick well‑capitalised mid‑caps, and stay cautious about betting on broad market rallies. Diversify across the positive sectors mentioned, and keep an eye on macro and policy developments.
Remember, this is perspective, not prediction. Do your own research and consider consulting a certified financial advisor before making any investment decisions.