As 2025 draws to a close with modest gains for Indian equities, market experts are setting their sights on the year ahead. Pradeep Gupta, Chairman and Managing Director of Anand Rathi Share and Stock Brokers, provides a detailed roadmap, suggesting a significant shift in market drivers for 2026.
From Consolidation to Earnings-Led Growth
Gupta characterizes 2025 as a year of healthy consolidation for the Indian stock market. This follows two years of exceptionally high returns and a remarkable decade of positive performance. He views this phase as a necessary reset for the markets.
Looking forward to 2026, Gupta anticipates a fundamental change. Market returns are expected to be led more by corporate earnings than by valuation expansion. He explains that if India's nominal GDP growth continues in the low double digits, the Nifty's performance should closely mirror the underlying earnings growth of its companies. This scenario, he notes, could also result in lower volatility compared to other global markets.
Selectivity is Key for Mid and Small Caps
The expert also addressed the recent underperformance of mid-cap and small-cap stocks. Gupta clarifies that this trend represents a normalization of valuations after a period of excess, not a structural problem with these segments.
However, the approach for 2026 requires caution. Broad-based rallies similar to previous cycles are unlikely. Instead, investors will need to be highly selective. Gupta identifies that well-capitalized companies possessing strong pricing power and robust balance sheets are the ones positioned to outperform in this environment. He warns that dispersion in performance within these segments will remain high.
Sectoral Outlook and Macro Resilience
On specific sectors, Gupta maintains a positive stance on domestic cyclical sectors linked to capital expenditure, manufacturing, and infrastructure. He also continues to favor financial institutions with strong liability franchises for their steady compounding potential.
Among emerging themes, he highlights growing strategic relevance in power, defence manufacturing, and select digital infrastructure plays. Regarding the Information Technology sector, he believes valuations have corrected significantly but a near-term sharp rebound is unlikely. The sector is undergoing a structural reset driven by AI and cloud optimization, making it a story for medium-term accumulation.
Gupta assesses India's macroeconomic condition as one of the strongest among large economies, citing stable growth, contained inflation, and manageable external balances. The primary risks, in his view, stem from potential global shocks, supply disruptions, and an uneven recovery in private capex, rather than domestic imbalances.
He also commented on the divergent behavior of Domestic Institutional Investors (DIIs) and Foreign Institutional Investors (FIIs). This divergence, according to Gupta, underscores India's growing domestic capital base, which now provides a cushion during global risk-off phases and reduces overall market fragility.
Expectations from the Upcoming Union Budget
For the Union Budget 2026, Pradeep Gupta expects policy continuity rather than disruptive changes. He anticipates the government will focus on fiscal consolidation without compromising growth. The budget is likely to emphasize sustained public capital expenditure and offer targeted support for manufacturing and employment generation. Any positive surprise, he concludes, is more likely to come from disciplined execution of policies rather than major headline announcements.
