A more optimistic 2026 lies ahead

 Dear Patron,

 Wishing you and your family a very Happy New Year.

 As we step into a new year, it’s worth pausing for a moment of reflection and recalibration. Greek philosopher Socrates once said, “An unexamined life is not worth living.” Similarly, an unexamined investment journey is incomplete.

 So, let’s take a look at what transpired in 2025 and why we believe 2026 could be different.

The year gone by was tough for Indian equities. But, after these turbulent 12 months, we believe that investors have reasons to be optimistic for 2026. Earnings recovery, macro tailwinds and improving sentiments could uplift the mood in the domestic markets. While global challenges are here to stay, we would like to reiterate that India’s structural growth story remains intact.

 Anticipating escalation in trade tensions and geopolitical shifts, suggest increase your allocation to domestic-focused growth sectors. Aligned the portfolios to near-and-long-term domestic structural drivers like GST reforms, income tax cuts, consumption revival, credit rebound, manufacturing drive and infrastructure push.

 

2025: A Tough Year                                                              

Indian equities faced heightened volatility throughout 2025. Trump’s trade wars continued to roil the markets, and subdued corporate earnings added to investors’ anxiety. Unnerved by this double whammy, foreign investors pulled money out of Indian markets. As a result, Indian markets underperformed emerging and developed markets.


Source: Bloomberg, Note: As on 24 December 2025 and Performance based on USD

While the Indian equity markets struggled, precious metals like gold and silver delivered stupendous returns of 71% and 149%, respectively in 2025.

 

Yet, beneath this turbulence, green shoots of recovery began to emerge toward the latter part of the year. We are seeing signs that the tides are poised to turn.

 

5 Reasons to Be Optimistic in 2026 

                                       

1.   Earnings recovery on cards

After a muted Q1, India Inc reported strong double-dight earnings growth in Q2FY26. Improved profitability (margins), stable demand and supportive commodity prices could support the earnings momentum in the rest of FY26. We expect H2FY26 earnings to strengthen amid rate-cut transmission, festival season consumption, rural demand normalisation, and sustained public capex.

 

Q2FY26 Earnings (NSE 500 companies)

Source: ACE Equity, Elara Securities Research. IT includes internet companies


 

2.   Resilient Marco Picture

India’s economy continues to show remarkable resilience amid trade wars. In Q2FY26, India’s GDP growth stood at a six-quarter high of 8.2%, significantly above 5.6% in the same period last year. Global agencies are taking a note of this robust GDP growth. Fitch Ratings recently upgraded India’s GDP growth estimates for FY26 to 7.4%, from 6.9% earlier – citing stronger consumer spending and GST reforms.



3.   Easing Rate Cycle

The RBI has been on a rate-cutting spree in 2025. It has delivered a 125-basis points-reduction in 2025, proactively supporting the Indian economy amid a turbulent global climate. Notably, the Indian central bank governor recently said that interest rates are expected to remain low for a long period. This is because India is enjoying a period of “Goldilocks” – robust growth and low inflation.


Source: Bloomberg


4.   Robust Domestic Flows

The FII (foreign institutional investor) sell-off and widening current account deficit pushed the Indian rupee to an all- time low – breaching the ₹90 per USD level mark. But, the domestic investors are showing unwavering faith in India’s growth story. In 2025, domestic institutional investors (DIIs) have poured USD 86 billion into Indian equities. These inflows are expected to remain robust with the SIP momentum showing no signs of weakening. The monthly SIP book is currently close to the all-time high, with the flows staying above the Rs 29,000 crs mark in October and November 2025.



5.   Global Interest

Foreign investors have shown strong interest in India’s financial services space – striking deals worth USD 15 billion in 2025. From banks and non-banking financial companies to investment banks and fintechs – foreign investors made a beeline to pick up stakes. We believe that these deals underscore the long-term confidence in India’s financial services space.

 

Note here that we are also bullish on this sector. With balance sheets now healthier and credit growth picking up pace, financial sector is entering a promising phase. Rising disposable incomes supported by demographic tailwinds and the central bank’s growth-oriented stance, are creating fertile ground for an upcycle in financial services companies. Lenders are well-positioned for a re-rating, driven by improving fundamentals and reasonable valuations. 

Key portfolio changes                                                           

 

We see stronger earnings durability, macro resilience, and valuation comfort in Large-caps, especially as India’s relative valuation premium faces scrutiny. Notably, large caps are relatively attractive, compared to the small and midcap (SMID) segments which have witnessed a sharp rally over the last two to three years. Note here that the valuations of large caps are close to their 20-year average, whereas SMID’s valuations are significantly above their long-term averages. Also, the weightage or share of large caps in the overall markets is at a 20-year low.


Source: Bloomberg, As on 31 Dec of each year. For 2025, it is as on 24 December 2025



Where are we positioned                                                       

We are positive on sectors that are domestically driven and structurally sound:

Private Banks

Select large players continue to trade below long-term average valuations, despite stable asset quality and earnings growth.

Capital Markets & Exchanges

Benefiting from strong GDP growth, rising market cap-to-GDP ratios, financialisation of savings, and increased equity participation.

Cement

Industry consolidation is driving a balance between volume growth and profitability.

Defence / Infrastructure / Manufacturing

The Make-in-India push and PLI schemes are empowering domestic capital goods firms to compete globally.

 Automobiles

Positive on 2W and select PV OEMs, supported by rural demand and easing input costs.

 Auto ancillaries

Offer resilience across cycles, being less affected by shifts in brand preferences.

 Healthcare (Hospitals)

With just 1.4 beds per 1,000 people—far below the WHO benchmark—India’s healthcare infrastructure offers long- term growth potential. Private players are scaling rapidly, gaining traction over the past decade.

 IT – A tactical Play

Strategically increasing exposure to large cap IT companies with fundamentally strong business models and quality earnings. A tactical play with robust dividend yield and fair valuations. Also, the depreciation of Indian rupee could give a boost to export-oriented businesses like IT.

Looking Ahead                                                                     

2025 tested investor patience and conviction. Yet, as we enter 2026, the landscape could look markedly different. Earnings recovery, macro resilience, and structural tailwinds provide a compelling case for optimism.

Volatility, while unnerving, creates opportunities to compound wealth over long run. We believe investors should leverage this environment to build strong equity positions.

India’s growth story remains intact and we are committed to helping you ride this wave with confidence and clarity.

Thank you for your trust and partnership. Here’s to a prosperous and rewarding 2026!

Warm Regards,

Surajit Nayak

Chief Value Creator - Nayakfin

Comments

Post a Comment

Popular posts from this blog

The New Indian Reality: When 40 Becomes the New Layoff Age

Image
  India is quietly drifting into a new reality — one that doesn’t make headlines until it hits your own living room. It doesn’t scream crisis. It arrives silently, and when it does, it stings. For a growing number of urban professionals, the most dangerous decade is no longer the 50s. It is the 40s. At 43, Rajeev Dhar didn’t think he was anywhere close to being “disposable.” A mid-level manager in a multinational tech company in Bengaluru, he had led migrations, held teams together during attrition waves, and trained younger hires who were now rising faster than him. He had done everything the corporate world tells you to do if you want to stay relevant. Then one week, he was told he was no longer “core.” He had become “excess cost.” The 15-minute call did not just end his job. It ended the illusion of stability. It hit him quietly and brutally — he had not only lost employment, he had lost the ground under his family. Not too long ago, the 40s were supposed to be the “settled” dec...
Read more

Why Your First 5 Years of Retirement Could Make or Break Your Future ! Mistakes to Avoid

Image
  The Costly Mistake Most Retirees Make in Their First 5 Years  When you imagine retirement, it feels like crossing the finish line of a long marathon. No more 9-to-5, no endless deadlines, no rushing to catch a train. Instead, you finally have the time to breathe, travel, spend time with loved ones, and rediscover hobbies. But here’s the harsh reality: the first five years of retirement are often the most expensive years of your life . Many retirees walk straight into a trap—assuming that expenses will reduce automatically after work ends. That single assumption can ruin decades of careful saving. After managing wealth for over nearly two decades, sharing insights of what really happens in those first few years as learnt from many !  Let’s break it down. Why Retirees Overshoot Their Budget Early 1. Lifestyle Overdrive Retirement is not about slowing down—it’s about catching up. The first years are filled with long-postponed dreams: weekend getaways, foreign tours, or eve...
Read more
Image
Two Dates a Day & Transforms Yourself. Dates are not just naturally sweet—they’re a  nutritional powerhouse . Whether you eat them in the morning, as an afternoon snack, or blend them into your smoothie,  just two dates a day  can do wonders for your health. Packed with  fiber, antioxidants, and essential minerals , dates are one of the easiest superfoods to add to your daily routine.  Why eating two dates every day can be a smart move for your overall well-being? A) Improves Digestion and Relieves Constipation Promote regular bowel movements Soften stool by absorbing water Flush out toxins from the colon If you face digestive issues, eating just two dates a day can make a real difference. B)  Boosts Immunity with Powerful Antioxidants Flavonoids  may reduce the risk of diabetes, cancer, and Alzheimer’s Carotenoids  improve heart health and support eye function C) Bone & Mineral Benefits Two dates get you magnesium, phosphorus, selenium ...
Read more