“Overall, I expect 2026 to be a lot better than 2025, especially for equities,” Shah said.
Consumer, financial and digital platforms will lead the growth
Shah expects earnings growth in 2026 to be driven by select sectors and not a broad market increase. Consumer and financial companies powered by technology and digital platforms remain key themes, supported by meaningful corrections in several listed names and attractive risk-reward profiles.
He also highlighted the opportunities arising from IPOs due in 2025, noting that newly listed companies often underperform initially but create attractive entry points within three to four quarters. “Some of today’s IPOs will become tomorrow’s leaders and future voters of Nifty,” he said.
Apart from digital platforms, Shah is bullish on sectors related to capital expenditure, healthcare and pharmaceuticals, including drug discovery and GLP-related opportunities, which could generate alpha in the medium term.
FIIs are likely to make a comeback
Shah expects foreign investors to meaningfully return to Indian markets in 2026 after years of underweight positioning. He said FIIs are currently significantly under-allocated to India and could reassess allocations after the Union Budget on February 1. Media reports suggesting that potential tax credits on long-term capital gains or dividend taxes could act as a major turning point for certain institutional investors, he added.”In the initial stages, capital flows are likely to go to largecaps as capital deployment is easier. As momentum builds, allocations across sectors will widen,” Shah said.
Large caps first, new-age sectors in the long term
While big banks, auto and other frontline stocks could be the first to benefit from renewed FII interest, Shah believes the most disproportionate long-term allocations will flow to “new frontiers” of the Indian economy. These include digital platforms, specialized technology, defense and drug discovery.
India’s 2026 IPO pipeline is also expected to remain strong, which may temporarily divert liquidity from secondary markets but improve market depth and diversity over time.
“India is emerging as a great market for IPOs. These companies will expand the opportunities offered and some will ultimately become wealth creators,” he said.
IT remains a bottom-up strategy with low growth
Despite the recent rallies, Shah maintained his cautious stance on major IT services companies, reiterating that their growth remains largely linear and linked to global technology spending.
“Large IT companies are technology enablers, not creators. AI helps them stay relevant, but is unlikely to meaningfully impact growth,” he said, adding that tier II and III IT companies could benefit more from AI adoption.
Correction creates opportunities in new-age technology
Shah remains bullish on digital platforms such as food delivery, high-speed commerce and fintech distribution, citing these as among India’s strongest long-term growth opportunities. He noted that recent corrections of 20 to 30 percent in several platform stocks have created attractive long-term entry points.
“There are regulatory concerns in the short term, but they don’t change the growth trajectory in the medium to long term,” Shah said.
Overall, Shah expects Indian markets to remain bottom-up in nature, with major indices tracking nominal GDP growth, while select sectors and companies deliver outsized returns over the next three to five years.
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