As Indian equity markets grapple with muted momentum and the Nifty struggles to decisively reclaim the 26,000 mark, investors face critical questions about timing and sector leadership. Speaking to ET Now, Ashi Anand, Founder & CEO of IME Capital, offered insights that tie market direction firmly to economic and earnings fundamentals while highlighting intensifying competition in new-age consumption themes.

Small and Midcap Recovery Requires Broader Market Momentum

Anand cautioned against premature optimism regarding the revival of small and midcap stocks. He emphasized that these segments cannot recover in isolation, stating that overall market momentum and corporate earnings improvement must come first. Investors are closely tracking the ongoing results season for early signs of an earnings turnaround across sectors.

According to Anand, clarity on macro variables—particularly the contours of the US-India trade deal—remains a critical missing piece. Without this visibility, expecting an early surge in the broader market may be unrealistic.

Cautious Optimism for 2026 Market Momentum

Addressing broader market momentum, Anand expressed measured confidence about 2026 prospects. He noted that after two years of strong performance, markets have been digesting a slowdown in economic growth and corporate earnings, compounded by global uncertainties.

However, the groundwork for recovery appears to be taking shape. Anand pointed to several policy measures rolled out over recent months as potential catalysts:

• Income tax cuts in lower slabs
• GST rationalization
• Interest rate cuts
• Easing stress in the banking sector

These factors could help revive consumption and support market recovery. Anand observed that parts of the market previously under strain are showing signs of improvement as the economy moves into 2026.

Zepto IPO Highlights Quick Commerce Competition

Beyond macro considerations, investor attention is focused on the quick commerce segment, particularly with Zepto's proposed IPO. Anand described the listing as one that will be closely watched from both valuation and competitive standpoints.

Unlike peers such as Swiggy, which straddle food delivery and quick commerce, Zepto represents a pure-play bet on rapid delivery—a business growing faster but still deep in investment mode. Anand characterized quick commerce as "possibly the most interesting land grab" available, highlighting the massive opportunity as traditional commerce increasingly shifts toward instant delivery models.

Competition is expected to intensify significantly, with incumbents sitting on strong cash balances and major players like Amazon and Flipkart maintaining their presence in the space.

Focus on Scale Over Short-term Profitability

Importantly, Anand pushed back against excessive focus on near-term profitability in the quick commerce sector. He argued that companies should continue investing and growing even at the cost of short-term profitability, as scale and positioning today will determine the eventual winners.

For portfolio decisions regarding Zepto, Anand indicated that relative valuations and clearer disclosures will be crucial as the company moves closer to listing. With many key metrics still awaited, more definitive investment judgments will follow once additional data becomes available.

Market Strategy: Patience and Selectivity

As markets appear to be in a waiting phase, balancing early signs of recovery against the need for sustained earnings momentum, Anand's analysis suggests that patience and selectivity may remain the dominant investment strategy. The path forward depends largely on earnings recovery clarity and resolution of key macro uncertainties, particularly around trade relationships and policy implementation.

Indian equity markets are entering 2026 with a fundamentally different character, shifting from the easy liquidity-driven gains of recent years to an environment where earnings quality and balance-sheet strength take precedence. After a robust 2025 marked by record highs, sharp sectoral reratings, and blockbuster IPO activity, investors now face a market demanding greater discipline and stock-specific conviction.

Nikhil Khandelwal, Managing Director at Systematix Group, believes the coming year will reward bottom-up stock picking over broad market exposure, as markets transition firmly from liquidity-led rallies to earnings-driven returns.

Market Foundation Remains Strong Despite Valuation Concerns

Indian equities enter 2026 on solid footing, supported by healthy domestic growth, improving corporate balance sheets, and sustained retail participation through systematic investment plans (SIPs). While valuations in certain market segments appear elevated, earnings visibility across most industries remains robust.

"The market is likely to stay earnings-driven rather than liquidity-led, which is a healthy sign," Khandelwal notes. "If corporate earnings deliver as expected and domestic flows remain steady, equities can continue to generate reasonable, albeit selective, returns."

Sectoral Preferences Favor Quality and Earnings Visibility

For 2026, Khandelwal expects a stock-picker's market favoring sectors with clear earnings visibility and strong balance sheets. Quality financials and banks remain preferred picks, supported by credit recovery and stable asset quality trends.

Capital goods and industrials linked to the private capital expenditure cycle appear well-positioned, while select exporters and pharmaceutical companies remain attractive due to stable margins and improved demand from China+1 and Europe+1 themes. Additionally, sustainability-focused themes around circularity, recycling, and green manufacturing offer long-term opportunities.

Caution Advised for Stretched Segments

Several segments that experienced sharp rerating in 2025 now appear stretched with limited room for disappointment. Defence companies, private non-banking financial companies (NBFCs), and road infrastructure firms, where stock prices moved faster than earnings growth, could face consolidation.

"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," Khandelwal advises.

Precious Metals and Currency Outlook

Gold and silver delivered strong outperformance in 2025 driven by global uncertainty, currency volatility, and shifting interest-rate expectations. For 2026, precious metals are likely to remain relevant, though returns may be more measured after the previous year's sharp rally.

The rupee's weakness, crossing the 90 mark against the US dollar, has been driven largely by global factors including foreign portfolio outflows and external trade pressures. However, Khandelwal emphasizes that India's macro fundamentals remain relatively stable, with domestic liquidity providing a counterbalance.

Investment Strategy for 30-40 Age Group

For investors in the 30-40 age bracket planning to invest ₹10 lakh in 2026, Khandelwal recommends a growth-focused approach with sensible risk management:

Key Market Triggers and Learnings

Earnings growth will remain the most critical trigger for markets in 2026, alongside interest rate trends and global liquidity conditions. Domestically, consumption patterns, private sector capital expenditure progress, and policy stability will be key determinants.

Khandelwal's key takeaway from 2025 emphasizes that markets reward earnings and balance-sheet strength far more than narratives. "Disciplined asset allocation and staying invested through volatility, especially via SIPs, proved more effective than trying to time short-term market moves," he concludes.

The transition to an earnings-driven market environment signals a maturing of Indian equity markets, where fundamental analysis and stock selection will increasingly determine investment success over broad-based thematic plays.