Indian equity markets are positioned for a cautious start to the week amid mixed earnings trends, with banking sector strength offsetting continued pressure on IT stocks, according to market expert Nischal Maheshwari. Speaking to ET Now, Maheshwari indicated that near-term market direction is being driven more by sector-specific earnings and valuations rather than broad-based structural weakness.

IT Sector Faces Headwinds While Banking Shows Resilience

Maheshwari observed that IT results have largely met or fallen short of expectations, with limited visibility on demand recovery. "There is no clear positive outlook coming from IT earnings declared so far," he stated. In contrast, banking results have demonstrated stronger performance, despite one-time provisions related to priority sector lending norms at large private lenders.

According to Maheshwari, core banking performance remains healthy with improving net interest margins and clear guidance on growth over the next few quarters. He noted that valuations for large private banks appear attractive, as many frontline names have delivered muted stock returns over the past 12-18 months.

Smaller Banks and PSU Lenders Expected to Lead

The market expert believes smaller private banks are currently benefiting from momentum and favorable valuations, positioning them to outperform larger peers in the short term. Within the banking sector, he expects PSU banks to lead initially over the next couple of quarters, followed by a catch-up in large private sector lenders as earnings visibility improves.

Metals Rally Continues Amid Geopolitical Factors

Regarding metals, Maheshwari noted that prices have experienced a sharp rally over the past quarter and could continue rising in the near term. However, he cautioned that the rally appears partly driven by financial flows into hard assets amid geopolitical uncertainty and reduced confidence in the dollar, rather than strong revival in physical demand. China's manufacturing recovery remains a key variable to monitor.

Real Estate Demand Remains Strong Despite Valuation Concerns

The real estate sector continues to demonstrate robust on-ground demand, particularly in major markets including Mumbai, Bengaluru, and Delhi NCR. Strong order bookings and deliveries support the sector's fundamentals, though elevated valuations have led to stock-level corrections and consolidation.

NBFCs and Infrastructure Stocks Gain Attention

Maheshwari remains constructive on NBFCs, citing easing funding costs and benign credit conditions. He expects performance to broaden beyond gold-focused lenders during the year. In infrastructure, select capital goods and power equipment players appear attractive after sharp corrections, particularly those gaining traction in data center and export-linked opportunities.

2026 Investment Themes Focus on Banking and Metals

Looking ahead to 2026, Maheshwari identifies banking as a well-established growth theme, while metals could continue to surprise on the upside as global investors increase allocation to real assets amid persistent geopolitical risks. The market expert expects sector rotation to continue, with investors favoring value, earnings visibility, and balance-sheet strength over high-growth but uncertain segments.

Indian equity markets are being weighed down primarily by sustained foreign investor selling rather than disappointing corporate earnings, according to Sandip Sabharwal of asksandipsabharwal.com in an interview with ET Now. The market expert noted that early earnings trends have been largely stable, with IT companies reporting results better than muted expectations and smaller financial firms delivering acceptable numbers.

FII Outflows Dominate Market Sentiment

Persistent foreign institutional investor (FII) outflows are the primary driver of current market weakness, with nearly ₹4,000-5,000 crore flowing out in the previous session alone. According to Sabharwal, recent tax changes combined with rupee depreciation have made India relatively less attractive for foreign investors.

Sabharwal added that concerns around tax claims, such as the case involving Flipkart, are unlikely to materially worsen the foreign portfolio investor outlook, as those rulings relate to operational entities rather than portfolio investors. "Foreign capital is moving to markets that are delivering strong returns right now, such as Korea," he said, noting that a more favourable tax environment could have improved inflows at the margin.

IT Sector Shows Stability with Limited Upside

On the IT sector, Sabharwal observed that low expectations have helped stocks react positively to earnings beats, citing movements in Infosys and TCS. However, he does not expect meaningful upside for large IT firms. "These are steady, low-risk businesses now. On market declines, they can offer 10-15% returns over time, but not much more," he explained, adding that industry growth is gradually improving from a no-growth phase to a 4-5% trajectory.

Sector-Specific Investment Outlook

Sabharwal believes real estate stocks are offering value after sharp corrections from recent highs. Despite concerns around job losses and slower sales, lower interest rates and stable rental income are supporting the sector. "Larger real estate companies with strong rental portfolios, especially those near 52-week lows, look attractive at current levels," he said.

Regarding Jio Financial Services, Sabharwal remained cautious, pointing out that most of its valuation is driven by treasury assets rather than operating scale. While lending growth appears strong quarter-on-quarter, he noted this is largely due to a low base and that valuations remain stretched.

Banking and Capital Markets Preferences

Sabharwal highlighted that asset management companies and annuity-style capital market businesses are better positioned than brokerage firms, which remain dependent on market volumes. "AMC earnings have been strong, AUM growth is steady, and valuations have corrected—making annuity plays more attractive than transactional ones," he said.

Despite strong recent results from PSU banks, Sabharwal maintains his long-term preference for private sector banks, flagging deposit mobilisation as a structural challenge for PSU banks, especially among younger customers. "The only PSU bank we own is State Bank of India, as it continues to defend its deposit market share," he said.

Commodity and Large-Cap Views

While remaining positive on metals in the near term, Sabharwal warned that commodity prices appear parabolic and could see sharp corrections. He cautioned investors entering metal stocks late in the cycle to exercise caution. On Reliance Industries, he said the stock looks reasonable after a near 10% correction, with strength expected in the refining and telecom businesses, even as retail performance remains under scrutiny.