ETMarkets Smart Talk | From liquidity to earnings: Why 2026 will be a stock-picker’s market, Nikhil Khandelwal decodes

Indian equity markets enter 2026 on a far more mature footing, with the easy liquidity-driven gains of recent years giving way to an environment where earnings quality and balance-sheet strength matter more than ever.

After a strong 2025 marked by record highs, sharp sectoral reratings, and a blockbuster IPO cycle, investors now face a market that demands greater discipline, selectivity, and stock-specific conviction.

Speaking to Kshitij Anand of ETMarkets, Nikhil Khandelwal, Managing Director at Systematix Group, shares his outlook on why the coming year is likely to reward bottom-up stock picking over broad market exposure, how key sectors are shaping up, what to expect from gold, the rupee and IPOs, and how investors—especially those in the 30–40 age group—should think about asset allocation as markets transition firmly from liquidity-led rallies to earnings-driven returns. Edited Excerpts -


Q) We have hit fresh record highs in November, with a 10% gain so far this year. How are we placed for 2026?
A) Indian equities enter 2026 on a strong foundation, supported by healthy domestic growth, improving balance sheets, and sustained retail participation through SIPs. While valuations in parts of the market are elevated, earnings visibility across most of the industries remains robust.

The market is likely to stay earnings-driven rather than liquidity-led, which is a healthy sign. If corporate earnings deliver as expected and domestic flows remain steady, equities can continue to generate reasonable, albeit selective, returns. Sectoral and stock selection will be far more important than broad market exposure in the next CY.

Q) Gold and silver outperformed by a wide margin in 2025. How will precious metals play out in 2026? Any triggers to watch out for?
A) Gold and silver delivered strong outperformance in 2025 on the back of global uncertainty, currency volatility, and shifting interest-rate expectations.

As we move into 2026, precious metals are likely to remain relevant, but returns may be more measured after last year’s sharp rally.

Gold should continue to play an important role as a hedge in volatile environments, especially if geopolitical risks or currency pressures persist.

Silver may see intermittent strength supported by industrial demand, though it is also more sensitive to global growth trends. Key triggers to watch include global interest-rate movements, currency dynamics, and geopolitical developments.

Q) The rupee has hit a fresh low against the US dollar, crossing the 90 mark. Are we heading towards 100? What is driving the weakness?
A) Rupee weakness has been driven largely by global factors, including intermittent foreign portfolio outflows, and external trade-related pressures. Elevated crude prices and uncertainty around global growth have added to the pressure.

That said, it is important not to read too much into short-term currency moves. Rupee has depreciated by only about 5% through 2025.

India’s macro fundamentals remain relatively stable and domestic liquidity continues to provide a counterbalance. While volatility may persist, a sharp, linear depreciation is not the base-case scenario.

Q) Which sectors are likely to hog the limelight in 2026?
A) 2026 is likely to be a stock-picker’s market, favouring sectors with earnings visibility and strong balance sheets. We continue to prefer quality financials and banks, supported by credit recovery and stable asset quality.

Capital goods and industrials linked to the private capex cycle look well placed, while select exporters and pharma remain attractive on stable margins and improved demand driven by China + 1 or Europe + 1 themes.

Themes around circularity such as recycling and sustainability-led manufacturing also offer long-term opportunities.

Q) Are there themes or sectors that have already run up in 2025, where investors may be better off paring exposure?
A) Several segments that saw sharp rerating in 2025 now appear stretched and leave limited room for disappointment. Pockets of defence, private NBFCs and Road Infra companies, where prices have moved faster than earnings, could see consolidation.

Some high-momentum mid- and small-cap names driven more by thematic enthusiasm than fundamentals may also warrant caution.

Rather than a broad exit, investors may be better off trimming exposure and shifting towards companies with stronger earnings visibility, balance sheets, and cash-flow discipline.

Q) IPOs crossed the Rs 2 lakh crore mark in 2025, the highest since 2007. What are your expectations for 2026?
A) The strong IPO activity in 2025 reflects healthy capital markets, improved corporate balance sheets, and robust investor appetite. Going into 2026, issuance is likely to remain active, though the pace may be more calibrated rather than euphoric.

Quality, pricing discipline, and post-listing performance will matter far more than headline volumes. Companies with clear business models and earnings visibility should continue to attract demand, while more speculative offerings may see selective investor participation.

Q) What were your key learnings from 2025 that investors should keep in mind?
A) One of the key learnings from 2025 is that markets reward earnings and balance-sheet strength far more than narratives. Valuations can stay elevated, but only companies that deliver consistently justify them.

Another takeaway is the importance of selectivity. Broad-based rallies are harder to sustain, and returns increasingly come from stock-specific ideas rather than themes alone.

Finally, disciplined asset allocation and staying invested through volatility, especially via SIPs, proved more effective than trying to time short-term market moves

Q) What will be the big triggers for equity markets in 2026?
A) Earnings growth will remain the most important trigger for markets in 2026. Interest rate trends, both globally and domestically, along with global liquidity conditions, will also play a role.

On the domestic front, consumption trends, progress on private sector capex, and policy stability will be key. While global developments will continue to influence sentiment, domestic fundamentals are likely to have a stronger bearing on market direction.

Q) If someone plans to invest Rs 10 lakh in 2026, what should be the ideal asset allocation for someone in the 30–40 age group?
A) For investors in the 30–40 age group, the focus should be on long-term growth with sensible risk management. An equity allocation of around 60–65% is reasonable, spread across large caps with selective exposure to mid caps.

About 20–25% can be allocated to debt instruments to provide stability and liquidity, while 10–15% can go into gold or other alternatives as a hedge against volatility.

The exact mix should depend on risk appetite and cash-flow needs, but maintaining diversification and staying disciplined through market cycles is far more important than chasing short-term returns.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)