Large-cap stocks offer a greater margin of safety for both valuations and earnings, compared to mid- and small-caps. And financials and consumer discretionary sectors are the key beneficiaries of the ongoing consumption recovery. Saurabh Jain, managing director and head, Wealth Solutions and Affluent Segments, Standard Chartered, India, tells Saikat Neogi investors should consider high quality corporate bonds given attractive credit spreads.
Are large-caps better positioned for higher returns?
Investors should see a more favourable environment for Indian equities in 2026. Consensus expects Nifty Index EPS CAGR to rise to 16% for FY26-28, compared to 5% for FY24-26 as the year-long earnings downgrade cycle bottoms out. An uptick in consumption demand amid GST cuts and strong rural demand are likely to drive the corporate profit cycle in the coming year. Historically, equities have delivered strong double-digit returns post the end of the easing cycle as lagged transmission of lower rates helps propel growth and earnings. For foundation equity allocation, we are overweight on large-caps as they offer a greater margin of safety for both valuations and earnings, compared to mid- and smallcaps. In addition, large-caps would be the first beneficiaries of a resumption of foreign investor inflows and higher equity allocation in hybrid strategies.
Which sectors are expected to perform well this year?
Among key sectors, we prefer domestic cyclicals, given our view of reflating growth (when taxes and interest rates are cut to boost spending), normalising inflation and supportive monetary and fiscal policy. We are overweight on financials and consumer discretionary as both the sectors are key beneficiaries of the ongoing consumption recovery driving a revival in earnings and rotation into these sectors. We expect consumer discretionary outperformance to continue this year as the ongoing consumption recovery gathers steam and becomes more broad-based over the next two years amid low food inflation, a strong agricultural cycle, lagged effects of GST rate cuts and potential wage hikes from the 8th Pay Commission. The sector’s earnings per share is expected to grow upwards of 25% CAGR over FY26-FY28, far superior to the index growth of 15%, justifying its premium valuations.
We stay overweight on financials going into 2026. The sector’s performance in 2025 was strong. Financials’ strong linkage to domestic growth makes it still attractive in a period of reflating growth. In addition, the sector has numerous tailwinds including bottoming out of net interest margins (NIM) as the interest rate easing cycle is close to its end and deleveraged corporate balance sheets amid favourable fiscal and monetary policy support — key supports to profitability for the sector over the medium-term. We expect the sector to deliver superior growth than the current 12% expectations over FY26-28 on the back of these tailwinds.
What is your fixed income strategy for this year?
We are overweight on bonds relative to cash, given the attractive absolute yield on offer. A reflationary macro environment, supportive fiscal and monetary policy are likely to drive a flattening of the yield curve in 2026. We expect the 10-year Indian government bond yield to trade 6.25-6.75% over the next year. For foundation bond allocation, we are overweight on short-maturity bonds as a flattening yield curve has improved the yield carry for them and short-maturity bonds’ lower sensitivity to interest rates compared to medium- and long-maturity bonds. We also like high quality corporate bonds, given attractive credit spreads with a likely compression of spreads amid improving corporate profitability and stable credit upgrades. Further, corporate bonds have historically outperformed 12 months post the end of the monetary policy easing cycle.
How do you see gold as a key portfolio diversifier?
We see gold as a key portfolio diversifier for an investor. Gold’s multi-year rally remains supported by broad, resilient demand, with emerging market central banks set to play an even larger role as they diversify reserves. Further, gold’s inverse relationship with bond yields and our weaker dollar outlook are other tailwinds. We are cautious on silver as it appears to be the most crowded market among key asset classes. Further, silver’s linkage to the global growth cycle, which is likely to slow in 2026, makes it vulnerable to own.
Why is it important to stay diversified for long-term wealth creation?
A well-diversified portfolio that allocates across a range of asset classes, with varying characteristics, performs differently under diverse market conditions. Uncertainty around near-term events that drives short-term volatility should not distract an investor from the long-term picture, which remains positive.
How should one look at investing in real estate?
We expect India’s real estate to see a similar trend in 2026, as the asset class gets more institutionalised and diversified. A favourable macro backdrop amid supportive policy environment, revival in consumption, improved occupancy and likely uptick investor demand is likely to support both commercial and residential segments of the sector.