ETMarkets Smart Talk | Polarised markets, weak breadth, but India enters 2026 on a strong macro footing: Devang Mehta

Indian equity indices may be hovering near record highs, but beneath the surface the market tells a far more nuanced story.

A sharp divergence between headline benchmarks and broader market performance has left portfolios under pressure even as the Nifty stays resilient.

In this edition of ETMarkets Smart Talk, Devang Mehta, Deputy Managing Director & CIO – Equity NDPMS, Spark Capital Private Wealth, decodes the growing polarisation, weak market breadth, and deep corrections across stocks, while explaining why India’s strong macro fundamentals—robust GDP growth, low inflation, healthy consumption, and improving earnings visibility—could provide a solid foundation as investors step into 2026. Edited Excerpts –


Q) Thanks for taking the time out. We have hit fresh record highs in November, with a 10% gain so far this year. How are we placed for 2026?
A) Nifty50 is trading around all-time high, but portfolios are reflecting a completely divergent trend. Broader market is telling a very different story. Market breadth has been extremely weak, and polarisation has been the buzz word.

From a universe of 1,518 listed companies with Market Capitalization >1000 Cr, here’s what the drawdown picture looks like:
1. 82% of stocks are down more than 10% from their 52 week highs
2. 60% are down more than 20%
3. 34% are down more than 30%
4. 14% are down more than 40%
Median Drawdown has been ~24%

Also, if you look at most of the developed and emerging market performance for 2025, India is somewhere very close in the bottom league.

We are still close to September 2024 levels on the headline indices and if we dissect the broader markets, a huge price and time correction has happened despite earnings improvement and growth.

India specifically is entering 2026 on a solid footing, supported by robust GDP growth, low inflation, and strong domestic consumption driven by policy measures like GST rate cuts.

Corporate earnings are expected to see double-digit expansion globally and in India which would support current market valuations.

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) Following a blockbuster 2025, the outlook for gold and silver in 2026 remains generally bullish, with prices expected to consolidate at higher levels and potentially reach new highs.

This positive sentiment is driven by persistent geopolitical uncertainty, strong institutional and industrial demand, and expectations of a more accommodative global monetary policy.

Sustained, aggressive buying of gold by central banks for reserve diversification, alongside renewed inflows into gold and silver Exchange-Traded Funds (ETFs), is a key structural support.

However, given the significant gains in 2025 and technically overbought conditions, potential short-term pullbacks or price corrections may keep the prices volatile.

Q) Rupee hit a fresh low against the USD surpassing the 90 mark. Are we on our way to breach the 100 mark against the USD. What is causing the fall?
A) The rupee's depreciation is driven by a mix of domestic and global factors.
India's heavy reliance on crude oil imports, which are priced in U.S. dollars, creates a consistent demand for the USD.

When global oil prices rise and imports surpass exports, the widening trade deficit puts significant pressure on the rupee.

Foreign investors have been consistently pulling money out of Indian markets to invest in more attractive or "safe-haven" markets like the U.S., especially with the AI boom and higher U.S. interest rates. This capital flight increases the demand for dollars and weakens the INR.

Lingering uncertainty and stalled negotiations over the India-U.S. trade deal have also weighed on market sentiment, contributing to the rupee's decline.

Also, the Reserve Bank of India (RBI) has generally adopted a policy of allowing gradual adjustment and managing volatility without targeting a specific exchange rate level, intervening only to prevent sharp, sudden shocks.

Strong macroeconomic fundamentals such as healthy GDP growth, strong foreign exchange reserves (around $690 billion), and robust services exports provide a significant buffer against extreme depreciation.

Q) Which sectors are likely to hog the limelight in 2026? Sectors that are likely to lead a rally.
A) Financials, auto, infrastructure, capital goods, healthcare, and consumer discretionary sectors are likely to lead the market rally in India, driven by an earnings recovery, strong domestic demand, and increased government capital expenditure.

Financials are expected to benefit from rising credit growth, improved asset quality, margin expansion, and the ongoing formalization of household savings. Auto sector anticipates strong demand for both mass-market and high-end vehicles.

With significant government focus on infrastructure development (roads, railways, power projects), capital expenditure is set to rise, leading to strong order books and visible earnings growth for companies in this space.

A revival in consumption demand, supported by lower input costs, potential tax reforms, and rising rural incomes, bodes well for companies in formal retail, branded goods, and lifestyle products.

Healthcare and pharma offer multi-year visibility, backed by higher public spending, increasing health insurance penetration, a growing focus on medical tourism, and a global shift in supply chains benefiting Indian contract development and manufacturing organizations (CDMOs).

Q) Any themes or sectors that have already run up in 2025, and investors will be better off paring stake in those themes?
A) Rather than themes or sectors, I would say, stay away from companies which are driven just on narratives.

Companies with strong fundamentals and robustness of the business model, promoter pedigree, corporate governance along with strong quantitative parameters including strong potential earnings growth & cashflows will command a premium.

Q) Mainboard initial public offerings (IPOs) have hit the 100-mark milestone (including SME) for the first time since 2007, raising nearly Rs 2 lakh cr mark. What are your expectations of 2026?
A) Over 190 companies are in various stages of the IPO process (either approved by SEBI or awaiting clearance), collectively targeting a potential fundraising pool of over Rs 2.5 lakh crore.

Expectations for the Indian mainboard IPO market in 2026 are highly optimistic, with projections for record-breaking fundraising driven by a robust pipeline of high-profile companies, strong domestic liquidity, and favourable economic conditions.

The IPOs are expected to come from a diverse range of sectors, with a strong focus on technology (fintech, e-commerce), financial services, manufacturing, infrastructure, and healthcare. Strong and sustained inflows from domestic institutional investors (DIIs) and retail investors have created a deep pool of capital to absorb large issues.

Following mixed performance in 2025 where some overvalued IPOs struggled post-listing, one can expect the market to mature in 2026, with a greater focus on fundamentals, profitability, and realistic valuations from both issuers and investors.

For investors, 2026 is expected to be a year of significant opportunity but also one that demands caution and a research-driven approach.

Q) What were your big learnings from the year 2025 you would want to share with readers?
A) Global cues have "Contemporaneous" impact. Indian markets in 2025 were more reactive to international events than ever, specifically US Fed decisions, geopolitical tensions (like the June 2025 escalation in the Russia-Ukraine conflict), and trade tariff shifts.

Learning here is, no market operates in a vacuum; monitoring global macroeconomics and trade policy is now essential for domestic investors.

The market experienced a roller-coaster ride with record highs and sharp corrections, underscoring that volatility is the "price of admission". Volatility must be your friend in the journey and not otherwise.

Resilience and "Buy-the-Dip" Mentality: The rising awareness and disciplined investing by local households created a robust "buy-the-dip" mentality, providing underlying support to the market even amidst short-term global shocks.

Domestic Liquidity is the New "Shock Absorber". The Indian market has become less reliant on external global capital, creating a floor for valuations during global turmoil.

Q) What will be the big triggers for equity markets in 2026?
A) Major triggers for global equity markets in 2026 are expected to be strong corporate earnings growth, the broadening application of artificial intelligence (AI), central bank interest rate cuts, and shifting geopolitical dynamics.

The primary risk remains a potential correction in the currently high-flying AI sector.

India in particular is expected to perform well due to strong domestic demand, robust earnings growth, improving balance sheet strength of lenders and corporates, infrastructure spending, and the potential for a reversal of foreign institutional investor (FII) outflows.

Acceleration in corporate earnings (10-15%+) in FY26-27, fueled by recovering demand, infra spending and credit growth should ideally be the main trigger.

A potential correction in U.S. AI stocks could see Foreign Institutional Investors (FIIs) re-invest in India, reversing 2025 outflows.

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