Speaking to ET Now, Shah said India’s relative underperformance last year was largely due to missing out on the global artificial intelligence (AI) trade. However, he expects that global AI exuberance will “moderate or sober down” in 2026, allowing India’s structural growth story and policy initiatives undertaken in 2025 to start reflecting in corporate earnings.
“Overall, I expect 2026 to be a lot better than 2025, especially for equities,” Shah said.
Consumer, financials and digital platforms to lead growth
Shah expects earnings growth in 2026 to be driven by select pockets rather than a broad market surge. Consumer and financial businesses powered by technology and digital platforms remain key themes, supported by meaningful corrections in several listed names and attractive risk-reward profiles.
He also highlighted opportunities emerging from IPOs listed in 2025, noting that newly listed companies 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 said.
Apart from digital platforms, Shah is positive on capital expenditure-linked sectors, healthcare and pharmaceuticals, including drug discovery and GLP-related opportunities, which could generate alpha over the medium term.
FIIs likely to make a comeback
Shah expects foreign investors to return meaningfully to Indian markets in 2026 after years of underweight positioning. He said FIIs are currently significantly under-allocated to India and could reassess allocations following the Union Budget on February 1.Media reports suggesting potential tax relief on long-term capital gains or dividend taxation for certain institutional investors could act as an important inflection point, he added.
“In the initial phase, flows will likely move into largecaps because capital deployment is easier. As momentum builds, allocations will broaden across sectors,” Shah said.
Largecaps first, new-age sectors over the long term
While 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. These include digital platforms, specialised technology, defence and drug discovery.
India’s IPO pipeline for 2026 is also expected to remain strong, which may temporarily divert liquidity from secondary markets but improve market depth and diversity over time.
“India is emerging as a great IPO market. These companies will expand the opportunity set and some will eventually become wealth creators,” he said.
IT remains a low-growth, bottom-up play
Despite recent rallies, Shah maintained his cautious stance on large IT services companies, reiterating that their growth remains largely linear and linked to global technology spending.
“Large IT companies are technology enablers, not creators. AI helps them stay relevant but is unlikely to move the needle meaningfully on growth,” he said, adding that tier-II and tier-III IT firms may benefit more from AI adoption.
Correction creates opportunity in new-age tech
Shah remains 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 20–30 percent corrections in several platform stocks have created attractive long-term entry points.
“Short-term regulatory concerns exist, but they do not alter the medium-to-long-term growth trajectory,” Shah said.
Overall, Shah expects Indian markets to remain bottom-up in nature, with headline indices tracking nominal GDP growth, while select sectors and companies deliver outsized returns over the next three to five years.