After a disguised bear market in 2025, three sectors in focus promise better returns in 2026: Dipan Mehta

After a volatile and largely disappointing 2025 for equity investors, seasoned market expert Dipan Mehta, director at Elixir Equities, believes 2026 could mark a meaningful turnaround – driven by an earnings rebound, selective stock selection and a shift towards export-oriented sectors.Speaking to ET Now, Mehta said 2025 looked like a ‘bear market in disguise’ despite the indices posting modest gains. “More than 70% of NSE stocks delivered negative returns and nearly 40% corrected more than 20-25%. Many portfolios have taken significant hits,” he noted, adding that such phases often set the stage for strong recoveries.

Auto stocks shine after VAT cut; M&M, Eicher top picks

Auto stocks emerged as standouts in 2025, supported by the rationalization of VAT rates and improving volume growth. Mehta remains optimistic about the December quarter and beyond, citing premiumization trends and robust demand.

“Our clear preference is for Mahindra & Mahindra in the passenger car space due to its EV strategy, market share gains and disciplined capital allocation,” he said. In the two-wheeler space, Eicher Motors stands out, supported by volume recovery and strong export potential.

Defense fully appreciated, software services ready for a comeback

While defense stocks continue to benefit from strong order books and policy support, Mehta struck a cautious note. “Defense is well managed and valuations are high. Execution risks and earnings volatility remain,” he said, while advising investors to accumulate PSU defense stocks like Bharat Electronics and HAL on corrections basis only.

In contrast, Mehta’s view on software services has turned positive. After underperforming and remaining understocked, IT stocks could see a strong trading rally in 2026. “The depreciation of the rupee and rising AI-related revenues make IT an attractive opportunity for large and midcaps,” he said.

Asset allocation remains critical, but Mehta remains heavily invested in equities

Despite gold and silver outperforming equities in 2025, Mehta emphasized that asset allocation remains a timeless strategy. “Investors must choose what gives them emotional comfort; fear and greed always play a role,” he said. That said, Mehta revealed his own long-standing preference: “I have always been 100% invested in equities, with 50-60% in midcaps. Staying true to one asset class has worked for me over three decades.”

Metals: temper expectations, prefer non-ferrous metals

Mehta urged investors to moderate return expectations for metals due to their cyclical nature. While there will be occasional trading upturns in the steel sector, he believes non-ferrous metals offer better long-term potential.

Stocks like Vedanta – driven by unlocking value through demerger – and Hindalco remain favored due to low costs and exposure to aluminium, copper, zinc and silver.

Theme 2026: Export-oriented sectors

Looking ahead, Mehta expects a strategic shift from domestically focused themes in 2025 to export-oriented businesses in 2026, especially as trade uncertainties diminish.

He highlighted IT services, pharmaceuticals and textiles as the major beneficiaries. Within the pharmaceutical industry, companies such as Lupine, Sun Pharma, Ajanta Pharma and Biocon appear well positioned, supported by domestic growth and recent acquisitions. In the textile sector, defeated names like Gokaldas, Welspun and Indo Count could rebound sharply if global demand improves.

Fast trading: long-term winners despite short-term noise

Addressing the recent volatility in fast-trading stocks, Mehta remained constructive on leaders like Swiggy and Eternal, while remaining open to upcoming IPOs like Zepto.

“These are long-term structural stories. Investors should be patient and hold small investments; profitability will increase as scale improves,” he said.

In short

Mehta believes 2026 will reward disciplined investors who focus on earnings recovery, valuation comfort and sector rotation. “It won’t be a broad-based rally, but selective opportunities will be plentiful,” he said. He added that patience and conviction will be key to generating alpha in the year ahead.