Nilesh Shah, Managing Director & CEO of Envision Capital, expects Indian equity markets to deliver significantly stronger performance in 2026 compared to the sharp underperformance witnessed in 2025. Speaking to ET Now, Shah outlined his optimistic outlook based on improving earnings visibility, policy support, and an anticipated return of foreign institutional investors.

India's 2025 Underperformance and 2026 Recovery Outlook

Shah attributed India's relative underperformance in 2025 primarily to missing out on the global artificial intelligence trade that dominated international markets. However, he anticipates a meaningful turnaround as global AI exuberance is expected to "moderate or sober down" in 2026, allowing India's structural growth story and policy initiatives undertaken in 2025 to reflect in corporate earnings.

"Overall, I expect 2026 to be a lot better than 2025, especially for equities," Shah stated, emphasizing that the policy groundwork laid in 2025 should begin translating into tangible corporate performance improvements.

Sector-Wise Growth Drivers for 2026

Shah expects earnings growth in 2026 to be driven by select pockets rather than broad market expansion. His preferred sectors and themes include:

Regarding newly listed companies, Shah noted that IPOs often underperform initially but create attractive entry points within three to four quarters. "Some of today's IPOs will become tomorrow's leaders and future Nifty constituents," he observed.

Expected FII Comeback and Flow Patterns

Shah anticipates foreign institutional investors will return meaningfully to Indian markets in 2026 after years of underweight positioning. He highlighted that FIIs are currently significantly under-allocated to India and could reassess their allocations following the Union Budget on February 1.

Media reports suggesting potential tax relief on long-term capital gains or dividend taxation for institutional investors could serve as an important inflection point for renewed foreign interest.

"In the initial phase, flows will likely move into largecaps because capital deployment is easier. As momentum builds, allocations will broaden across sectors," Shah explained.

Long-term Sectoral Preferences

While acknowledging that large banks, automobiles, and other frontline stocks could benefit first from renewed FII interest, Shah believes the most disproportionate long-term allocations will flow into "new frontiers" of the Indian economy:

• Digital platforms and specialized technology
• Defence sector opportunities
• Drug discovery and healthcare innovation
• Fintech distribution businesses

Shah remains particularly bullish on digital platforms such as food delivery, quick commerce, and fintech distribution businesses, calling them among India's strongest long-term growth opportunities. He noted that recent corrections of 20-30% in several platform stocks have created attractive long-term entry points, despite short-term regulatory concerns.

Cautious Stance on IT Services

Despite recent rallies in technology stocks, Shah maintained his cautious stance on large IT services companies. He characterized their growth as largely linear and linked to global technology spending patterns.

"Large IT companies are technology enablers, not creators. AI helps them stay relevant but is unlikely to move the needle meaningfully on growth," Shah explained, suggesting that tier-II and tier-III IT firms may benefit more from AI adoption than established large-cap players.

Market Structure and Investment Approach

Shah expects Indian markets to remain bottom-up in nature, with headline indices likely tracking nominal GDP growth while select sectors and companies deliver outsized returns over the next three to five years. India's strong IPO pipeline for 2026 may temporarily divert liquidity from secondary markets but should improve overall market depth and diversity over time.

As markets experience significant turbulence, investors are grappling with the critical question of where to allocate funds for optimal stability and growth. Market volatility has created uncertainty among investors, prompting them to seek expert guidance on strategic investment decisions.

Expert Outlook on Equity Markets

Nilesh Shah, Managing Director & CEO at Envision Capital, has shared his perspective on the current market scenario and future prospects. Shah believes that 2026 will prove to be a significantly better year for equities compared to 2025, providing investors with a more optimistic long-term view.

Key Factors Supporting Future Growth

Shah's positive outlook for 2026 is anchored on two primary factors that are expected to drive market performance:

• Policy tailwinds that are anticipated to create a more favorable investment environment
• Improving earnings visibility which should provide greater clarity and confidence for market participants

These factors suggest that while current market conditions may present challenges, the underlying fundamentals point toward a more robust equity market performance in the coming years.

Strategic Investment Approach

The expert's assessment comes at a time when investors are actively seeking guidance on navigating market volatility. Shah's outlook provides a framework for investors to consider longer-term positioning strategies, emphasizing the importance of looking beyond immediate market turbulence to identify future opportunities.

The emphasis on 2026 as a superior year for equities suggests that investors may need to adopt a patient approach, focusing on fundamental factors that could drive sustained market growth rather than short-term market movements.

Source: https://www.etnownews.com/markets/exclusive-where-should-investors-park-money-amid-market-volatility-nilesh-shah-shares-sectoral-picks-article-153440581