After a disguised bear market in 2025, 3 sectors in focus as 2026 promises better returns: 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 earnings revival, selective stock picking, and a shift towards export-oriented sectors.

Speaking to ET Now, Mehta said 2025 resembled a “disguised bear market” despite headline indices posting modest gains. “Over 70% of NSE stocks delivered negative returns and nearly 40% corrected over 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 GST cut; M&M, Eicher top picks

Auto stocks emerged as standout performers in 2025, buoyed by GST rate rationalisation and improving volume growth. Mehta remains optimistic about the December quarter and beyond, citing premiumisation trends and robust demand.


“Our preference is clearly for Mahindra & Mahindra in passenger vehicles 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.

Defence fully valued, software services set for a comeback

While defence stocks continue to benefit from strong order books and policy support, Mehta struck a cautious note. “Defence is well owned and valuations are rich. Execution risks and earnings volatility remain,” he said, advising investors to accumulate PSU defence stocks such as Bharat Electronics and HAL only on corrections.

In contrast, Mehta’s outlook on software services has turned positive. After underperforming and remaining under-owned, IT stocks could see a strong trading rally in 2026. “Rupee depreciation and rising AI-linked revenues make IT an attractive opportunity across large and midcaps,” he said.

Asset allocation remains key, but Mehta stays equity-heavy

Despite gold and silver outperforming equities in 2025, Mehta stressed 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 loyal to one asset class has worked for me over three decades.”

Metals: Temper expectations, prefer non-ferrous

Mehta urged investors to moderate return expectations from metals due to their cyclical nature. While steel may see intermittent trading rallies, he believes non-ferrous metals offer better long-term potential.

Stocks like Vedanta—driven by value unlocking through demerger—and Hindalco remain preferred plays due to low-cost operations and exposure to aluminium, copper, zinc, and silver.

2026 theme: Export-oriented sectors

Looking ahead, Mehta expects a strategic shift from domestic-focused themes of 2025 to export-oriented businesses in 2026, especially if trade uncertainties ease.

He highlighted IT services, pharmaceuticals, and textiles as key beneficiaries. Within pharma, companies like Lupin, Sun Pharma, Ajanta Pharma, and Biocon appear well positioned, backed by domestic growth and recent acquisitions. In textiles, beaten-down names such as Gokaldas, Welspun, and Indo Count could rebound sharply if global demand improves.

Quick commerce: Long-term winners despite near-term noise

Addressing recent volatility in quick-commerce stocks, Mehta remained constructive on leaders like Swiggy and Eternal, while keeping an open mind on upcoming IPOs such as Zepto.

“These are long-term structural stories. Investors should have patience and maintain small allocations—profitability will come as scale improves,” he said.

Bottom line

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—adding that patience and conviction will be key to generating alpha in the year ahead.