After a year of consolidation and correction, Indian Equity Markets are entering 2026 with cautious optimism, according to Pranav Haridasan, Managing Director and CEO of Axis Securities. The executive discusses market dynamics, sectoral opportunities, and key risks that could shape the year ahead.

Market Recovery After Consolidation Phase

Haridasan contextualizes the current market environment following a phenomenal three to four-year run that consolidated during the past year. Mid and small-cap segments experienced corrections due to stretched valuations and slower earnings growth, which aligned with economic performance fundamentals.

The market has absorbed significant capacity through new IPOs and broadened its base. While excesses have corrected and may have slightly undershot, Haridasan notes that markets are in better shape than the previous year. Macroeconomic fundamentals have improved, with reasonable visibility of earnings growth expected for the next financial year.

Impact of RBI Rate Cuts on Financial Sector

The recent RBI rate cut aligned with market expectations, presenting a mixed outlook for financial institutions:

Haridasan emphasizes that market focus has shifted from rate cuts to trade deal developments. Currency stabilization and improved FPI sentiment depend on trade deal completion, which could restore confidence among domestic investors.

Sectoral Outlook and Market Segment Performance

The CEO expects large-cap stocks to lead initially if FPI interest returns, citing tremendous value opportunities with expected earnings recovery and lower risk profiles. Financials could experience extended outperformance during this phase.

For mid and small-cap segments, Haridasan notes structural changes with emerging sectors and widening stock bases. The first one to one-and-a-half quarters will likely favor large caps, with mid and small caps catching up as confidence returns.

Promising Sectors for 2026

Several sectors present turnaround opportunities:

• Financials: Remain attractive despite near-term challenges
• Make in India themes: Defence and manufacturing plays, pending trade deal clarity
• Consumption: Benefiting from GST cuts and tax reductions putting more money in consumer pockets

The upcoming budget could prove crucial, with five to seven landmark legislations passed during the year and ongoing reforms targeting developed economy status by 2047.

IPO Market Dynamics and FPI Behavior

A notable divergence has emerged with FPIs selling in secondary markets while selectively buying IPOs. Haridasan attributes this to value-driven decision making, as FPIs view recent IPOs as structurally positive growth stories for India.

The 2026 IPO cycle is expected to remain value-driven, with continued demand from both domestic and foreign investors for reasonably priced offerings. Haridasan hopes for well-distributed IPO calendar throughout the year rather than concentrated spurts.

Commodity Markets and Portfolio Hedging

Gold and silver reaching record highs reflects both hedge trading and macro uncertainty signals. Haridasan notes global concerns including exaggerated AI stock valuations, with commodities serving as reasonable hedges against equity investments.

Some commodity movements are structural, driven by genuine demand in areas like chip manufacturing. The executive distinguishes between transactional business and portfolio hedging, suggesting that typical large commodity moves followed by consolidation have likely already occurred.

Key Risk Factors for 2026

Global geopolitics represents the single biggest risk for Indian markets in 2026, continuing from the previous year. The unpredictable nature of geopolitical developments, including the delayed India-US trade deal, creates ongoing uncertainty.

Additionally, Indian markets decoupled from global markets during the consolidation year, underperforming within Asian and emerging market baskets. While this positioning might provide relative outperformance during global corrections, absolute impact remains a concern for market participants.

The ongoing volatility in Indian equities reflects market sentiment rather than structural weakness, with the benchmark index trapped in a prolonged consolidation phase, according to HDFC Securities' senior analyst. Vinay Rajani, AVP and Senior Technical & Derivative Analyst at HDFC Securities, emphasized that current market conditions stem from indecision rather than fundamental deterioration.

Nifty Locked in Extended Consolidation

The benchmark index has demonstrated remarkable consistency in its range-bound behavior, remaining within defined parameters for five consecutive weeks. Rajani highlighted the market's inability to establish clear directional momentum despite multiple breakout attempts.

"The market is not finding any momentum or clear direction. This consolidation phase has continued despite multiple attempts to break out," Rajani explained. He noted that the 50-day exponential moving average near 25,834 has emerged as a crucial support level, with the index experiencing two sharp reversals from this zone in December alone.

Market Breadth Concerns Persist

While acknowledging current market challenges, Rajani pointed to weak advance-decline ratios as a near-term concern indicating poor market breadth. However, he contextualized this weakness within typical consolidation behavior patterns. "That is a concern, but consolidation phases often see poor breadth. A reversal can still happen anytime," he stated, noting that selective stocks continue demonstrating strength despite lacklustre index performance.

Critical Levels for Market Direction

Rajani outlined specific technical levels that traders should monitor for potential market direction changes. The 25,700 level on a closing basis represents the key threshold for maintaining upside potential.

"As long as 25,700 holds, the possibility of an upside reversal remains intact. A decisive move above 26,150 would be an early signal of renewed bullishness," he advised. The analyst recommended maintaining long positions with strict stop losses positioned near the lower end of the established range.

Selective Stock Opportunities

Despite broader market uncertainty, Rajani identified specific stocks showing technical strength and fresh breakout potential:

Jindal Stainless has demonstrated resilience during market declines while showing fresh breakout patterns with rising volumes.

UPL continues outperforming the broader chemical sector while trading near all-time highs.

Strategic Approach for Current Market

Rajani emphasized the importance of patience and disciplined approach during the current market phase. "Momentum is missing, but consolidation itself is not bearish. Traders should stay selective, respect key levels, and focus on stocks showing relative strength rather than chasing the index," he concluded. The analyst's assessment suggests that while immediate momentum remains elusive, the market structure does not indicate fundamental deterioration, supporting a selective investment approach focused on technically strong individual securities.