India's Stock Market: Navigating Consolidation and Future Trends

Understanding India's Market Dynamics

According to Krishna Sanghavi, Chief Investment Officer - Equities at Mahindra Manulife Investment Management, there is no compelling reason to be bearish on Indian equities. The market is currently going through a phase of consolidation with an occasional downward bias.

Key Players in the Market

The Indian market can be seen as an interplay between three key participants: domestic investors as core buyers, Indian corporates as perpetual suppliers of equity, and Foreign Institutional Investors (FIIs) acting as the crucial swing factor.

When FIIs turn positive, the market sees two buyers and one seller, but when they are selling, the market faces two sellers and one buyer. This dynamic is central to the market's direction, making FIIs a key factor in market trends.

Looking Ahead to 2026

Krishna Sanghavi expressed a positive bias for the headline index, but noted that a significant move depends on the return of FII flows. After a period where Indian markets outperformed other emerging markets, a recent phase of consolidation has made India relatively attractive again.

The valuation gap between India and other markets has narrowed, potentially luring global investors back if global conditions permit. This could lead to an increase in stock prices and a boost to the Indian economy.

Initial Public Offering (IPO) Market

The booming IPO market has contributed to a rising market-cap-to-GDP ratio, making India appear more expensive on a top-down basis. However, Krishna Sanghavi pointed out that the ratio has risen largely because of new market cap creation, not rerating alone.

He cautioned investors to differentiate between IPOs where companies raise fresh capital for growth and those that are primarily an Offer for Sale (OFS), allowing existing promoters and private equity investors to exit at high valuations.

Promising Sectors for 2026

Krishna Sanghavi identified three key themes for 2026:

• Consumption: The core story can still remain consumption, encompassing auto, retail, staples, and even financial services, which he views as a form of consumption play.
• Metals: Metals are the essential backend for the 'Make in India' manufacturing story. He expects Indian metal companies to see reasonably high volume growth over the next three to five years, but warned about the sector's inherent cyclicality and volatility.
• Export-oriented companies: He believes that after a weak period for export-oriented firms due to global economic concerns, a supportive rupee and any positive news on trade deals could trigger a strong rally in this space.

These themes are expected to drive market growth and provide opportunities for investors in the Indian stock market.