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Indian equities enter 2026 amid fresh record highs, but beneath the headline indices, opportunities are quietly emerging in segments that have seen meaningful correction.
According to Avinash Agarwal, Senior Vice President & Head – Equity at Bandhan Life, the midcap space now offers a compelling risk-reward, especially when valuations are viewed through the lens of growth rather than plain multiples.
Speaking to Kshitij Anand of ETMarkets, Agarwal shares why midcaps look attractive on a PEG basis despite valuation concerns, how rate cuts, reforms and domestic growth could reshape market leadership in 2026, and where investors should tread with caution after the sharp run-up in select themes. Edited Excerpts -
Q) We have hit fresh record highs in November, with a 10% gain so far this year. How are we placed for 2026?
A) With earnings growth expected to improve next year and many negative events already factored in, we believe that the markets should do reasonably well in 2026.
While the Nifty has done reasonably well this year, some segments of mid- and small caps have seen meaningful correction. This has made them more attractive to invest in.
We believe 2026 will be much better for the mid- and small-cap segment as the full benefit of rate cuts, GST reforms, and other announcements flows into the economy. Midcaps are also better representatives of the domestic economy compared to large caps.
Despite the prevailing market perception that midcaps are overvalued, we are launching a new midcap fund in early 2026. Our conviction is based on two key pillars.
First, midcaps have historically been the market’s top-performing segment over the long term, making them an essential component for life insurance portfolios.
Second, we believe high-growth midcap companies should be evaluated using the Price/Earnings-to-Growth (PEG) ratio rather than a standard P/E multiple. On a PEG basis, midcaps are currently trading at attractive levels relative to historical averages.
Q) Gold and silver outperformed by a wide margin in 2025. How will precious metals play out in 2026? Any triggers to watch out for?
A) Both gold and silver did well this year due to various reasons. While both benefited from the Fed rate cut, gold also benefited due to purchases made by central banks. Similarly, silver has seen some supply concerns, plus new uses have led to greater demand. While the triggers for further upmove are still present, we believe, given the significant price move this year, the return expectations should be more tempered for 2026.
Q) Rupee hit a fresh low against the USD surpassing the 90 mark. Are we on our way to breach the 100 mark against the USD. What is causing the fall?
A) The rupee recently turned weak mainly due to two factors 1) the tariff imposed by the US and 2) the balance of payments going negative due to lower exports as well as lower FDI/FPI flows. The current account deficit continues to be negative.
Any announcement of a trade deal should support the rupee. Also, we have recently seen multiple announcements of FDI in the BFSI sector totalling to around USD 10 billion. Crude oil has also corrected to around USD 60/barrel and is expected to remain weak.
This should also support the rupee. Hence, while it’s difficult to give a level, we believe some factors to support the rupee should help in the near term.
Q) Which sectors are likely to hog the limelight in 2026? Sectors that are likely to lead a rally.
A) We believe banks should do well in 2026 given that the rate cut cycle is largely behind us. Rate cuts were putting pressure on the NIMs (Net Interest Margins) of banks.
That should change next year. Also, the asset quality continues to be very good, barring some small segments. The credit growth has also been stable at low double digits. With government reforms plus rate cuts, the growth should also pick up.
The real estate sector can also do well, as they corrected this year, and valuations have come to a more reasonable level.
Q) Any themes or sectors that have already run up in 2025, and investors will be better off paring stake in those themes?
A) Some pockets of the markets have run up in anticipation of high growth in future years. These stocks are not only factoring in high growth but are also trading at high multiples. Investors should be cautious of such sectors.
We feel bottom-up stock picking will help the investors in the current market.
Q) Mainboard initial public offerings (IPOs) have hit the 100-mark milestone (including SME) for the first time since 2007, raising nearly Rs 2 lakh cr mark. What are your expectations of 2026?
A) Given the good inflows from the domestic investors, there is a lot of demand for primary issuances. We have seen buoyancy in the primary market due to this.
As of now there doesn’t seem to be any indication of a slowdown in flows, and hence demand is expected to be strong for IPOs. Also, as per media reports, there are several large IPOs lined up for 2026.
This is good for the markets in the long run, as it will add more depth to the market and allow investors to participate in various segments of the market. In the short term it is allowing the excess liquidity to be absorbed.
Q) What were your big learnings from the year 2025 you would want to share with readers?
A) The year 2025 has been full of challenges starting with a slowdown in the domestic economy followed by the conflict with our neighbour. The tariff remained an issue throughout the year.
It initially seemed to favour us, then it seemed to be neutral and eventually negative. With so much uncertainty, you would normally expect the market to correct. However, we have not done too badly in terms of market return. It has re-emphasised that we should ignore external noise and focus on earnings growth.
Even in a challenging year, the companies that have managed to grow well have done well. Also, the shift of household savings pattern into equity is a very strong market force which will remain a dominant factor to keep the market buoyant in the days to come.
Q) What will be the big triggers for equity markets in 2026?
A) Some of the triggers for the equity markets could be the resolution of the Ukraine– Russia war, a trade deal between India and the US, Fed rate cuts, and further easing by the RBI. Any further reforms or measures by the government to boost demand will also be positive.
Q) If someone plans to invest, say Rs 10 lakh in 2026 – what should be the ideal asset allocation for someone who is in the age bracket of 30-40 years?
A) Irrespective of the specific year, individuals aged 30 to 40 are advised to allocate a greater share of their savings to equity investments (such as direct stock purchases, Unit-Linked Insurance Plans, or mutual Funds), leveraging their extensive remaining earning potential.
They should allocate some to debt instruments and a small portion to bullion such as gold/silver. However, each person has a unique financial position and should take a decision based on his position or consult a financial advisor before taking a decision.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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