A report by 1 Finance notes that while a recovery is underway, it remains uneven. Largecap stocks are supported by reasonable valuations, expectations of rate cuts and strong domestic institutional investor support. In 2026, mid and smallcap stocks could benefit from a revival in rural consumption, progress in banking sector reforms and continued momentum in labour reforms. However, risks such as a global growth slowdown, persistent rupee weakness and volatility in foreign institutional investor flows could weigh on overall market sentiment.
Can metals replicate the 2025 stellar show?
In the precious metals space, gold may find support from expectations of Fed rate cuts and a decline in US 10-year real yields, along with sustained ETF inflows and strong central bank buying, which totalled 863 MT in 2025. At the same time, a potential slowdown in investment demand after the recent rally, softer jewellery consumption and a stronger-than-expected dollar could limit further gains.Silver continues to be underpinned by a multi-year supply deficit and rising industrial demand, particularly from the solar and electronics sectors, as well as supply-side restrictions in China. However, a stronger dollar and profit-taking following a rally of over 100% could pose near-term headwinds.
Macro uncertainty
The report projects India’s GDP growth at 6.7% in CY26, with inflation expected to average 3.9%. This, it said, creates room for a 50–75 bps repo rate cut in 2026. Globally, the rate-cut cycle is expected to slow sharply, with the Fed projected to deliver just two cuts in 2026, the ECB likely to pause, and the Bank of Japan expected to hike rates.
Indian equities underperformed most global markets in 2025, impacted by FPI outflows, a 6% depreciation of the rupee against the US dollar and weak urban consumption. Globally, US and Euro Area equity markets carry a negative outlook, with the S&P trading at a P/E of 29.4x and risks stemming from inflation, tariffs and US debt at $38 trillion. In contrast, equity markets in the UK, China and Japan are seen as offering relatively better opportunities.Also read: Frightful February for IT stocks: How Anthropic’s 6 AI tools sparked a multi-billion dollar meltdown in 4 weeks
Commenting on the findings, Animesh Hardia, SVP, Quantitative Research at 1 Finance, said 2025 rewarded investors who chased narratives, but 2026 presents a different environment as rate cuts are slowing and geopolitical risks are re-emerging. He said the data indicate that India has transitioned from slowdown to recovery, and asset allocation strategies need to reflect that shift before it becomes widely apparent.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)