From valuations to profits: How investors should position portfolio in 2026

As 2025 draws to a close, India is entering the new year from a position of unusual macro comfort—one that stands out in an otherwise unsettled global landscape. Record-low inflation, supportive monetary policy, resilient domestic demand and early signs of an earnings upcycle are together reinforcing confidence in India’s medium- to long-term growth trajectory, according to the latest Market Outlook – December 2025 report by PL Wealth Management, the wealth management arm of Prabhudas Lilladher.

 

 The Reserve Bank of India cut the repo rate by 25 basis points to 5.25% and maintained a dovish stance, while simultaneously lowering its inflation projections and upgrading GDP growth estimates. Headline CPI inflation slipped to a multi-year low in October 2025, driven largely by a sharp correction in food prices, even as core inflation remained well contained. The signal from Mint Street has been clear: inflation risks are manageable, and growth support remains the priority.

 

Against this backdrop, India’s GDP growth forecast for FY26 has been revised upward to 7.3%. High-frequency indicators continue to point to momentum—composite PMI readings remain near expansionary highs, with services activity strengthening further in November. Festive-season demand, healthier corporate and banking balance sheets, and tentative signs of a revival in private capital expenditure have all contributed to better growth visibility than earlier in the year.

 

In effect, the RBI has bought the economy time—time for demand to compound and for corporate balance sheets to translate stability into profit growth.

 

That translation may already be underway. The September-quarter earnings season for FY26 delivered one of the broadest patches of strength in recent years, with hospitals, capital goods, cement, electronics manufacturing services, ports, NBFCs and telecom all posting double-digit growth in profits and EBITDA. More tellingly, this quarter marked the first upgrade to NIFTY earnings estimates since August 2024, suggesting that the long-awaited earnings upgrade cycle may finally be stirring.

 

PL Wealth now expects NIFTY earnings to grow at nearly 14% CAGR between FY26 and FY28, and has set a 12-month target of 29,094—not on the assumption of aggressive valuation re-rating, but on improving earnings visibility.

 

Markets, too, are behaving differently this time. Despite persistent foreign portfolio outflows and global volatility, Indian equities have avoided sharp drawdowns. The reason lies closer to home. Domestic institutional investors have pumped over ₹6.8 trillion into equities year-to-date, largely via steady SIP flows, quietly absorbing supply whenever risk sentiment turns fragile.

 

 “India’s current macro configuration is among the most constructive we have seen in over a decade. With inflation at multi-year lows, monetary policy firmly growth-supportive and domestic demand holding up strongly, the foundation for a durable earnings cycle is now in place. While global uncertainties will continue to create short-term volatility, India’s structural strengths—policy reform, financialisation of savings and improving corporate balance sheets—position it well for sustained long-term growth," said Inderbir Singh Jolly, CEO, PL Wealth Management.

 

From a strategy standpoint, PL India continues to adopt a balanced and quality-focused investment approach. In the near term, large-cap stocks remain preferred due to their earnings stability and strong balance sheets, while selective exposure to high-quality mid-cap names is being added as visibility improves. Over the next 6 to 24 months, the earnings cycle is expected to broaden across consumption, financials, capex-linked sectors and select industrials, supported by benign inflation, lower interest rates and sustained domestic liquidity.

 

The fixed income environment has also turned decisively favourable. A combination of rate cuts, multi-year low inflation and proactive RBI liquidity operations has enhanced the risk-reward profile across bond markets. Government bond yields remain steep, with the five-year G-Sec offering a term premium of nearly 100 basis points over the policy rate. PL India continues to favour the five- to eight-year segment of the yield curve, which benefits from open market operations and attractive carry. High-quality AAA-rated corporate bonds in the two- to four-year maturity segment also offer compelling value, with potential for further spread compression as liquidity conditions ease.

 

Commodities—particularly precious metals—have emerged as a key structural theme within multi-asset portfolios. Gold has been among the strongest-performing assets of 2025, rising over 60% year-to-date, supported by record global demand, strong ETF inflows and sustained central bank buying. PL Wealth outlook for gold in 2026 remains moderately to strongly positive amid geopolitical uncertainty, currency volatility and expectations of lower real yields.

 

Silver has significantly outperformed gold, gaining over 100% year-to-date and crossing the US$60 per ounce mark. Its performance has been driven by a powerful industrial demand cycle linked to solar energy, electric vehicles, semiconductors and power electronics, alongside persistent supply deficits. While silver remains more volatile than gold, its long-term outlook is supported by strong structural demand from the global energy and technology transition.

 

Overall, PL Wealth Management reiterates confidence in India’s long-term growth narrative, even as near-term risks from global volatility, trade dynamics and currency pressures persist. With inflation benign, policy support firmly in place and earnings visibility improving, PL India continues to advocate a disciplined and diversified investment approach—focusing on quality equities, stable carry in fixed income and selective exposure to structural growth themes such as domestic cyclicals and precious metals—as India closes 2025 on a strong macro and market footing.

 

What Should Investors Do Now?

 

1. Stop chasing narratives. Start backing earnings.

After two years of valuation-led returns, the next phase is likely to be earnings-driven. Investors should prioritise companies with visible cash flows, pricing power and balance-sheet strength, particularly in large caps, where earnings reliability is higher.

 

2. Let domestic liquidity work for you.

With domestic inflows crossing ₹6.8 trillion this year, SIP-driven money has become the market’s shock absorber. Long-term investors should stay invested and stagger allocations, using volatility to add rather than exit.

 

3. Be selective, not aggressive, in mid-caps.

The mid-cap universe is no longer cheap. Exposure makes sense only where earnings upgrades are clear, leverage is low and governance is clean. 

 

4. Lock in carry while rates are falling.

Benign inflation and a dovish RBI have reopened fixed income as a genuine return asset. Investors should extend duration gradually, focusing on the 5–8 year government bond segment and high-quality AAA corporate bonds where carry and roll-down remain attractive.

 

5. Treat gold as strategy, not insurance.

With gold up over 60% and ETF inflows at record levels, gold is no longer just a hedge—it’s a portfolio stabiliser. A 5–10% allocation can help manage volatility and currency risk.

 

6. Use silver sparingly—but with intent.

Silver’s 100% rally reflects a structural industrial demand story, but volatility remains high. Investors should cap exposure and view it as a thematic allocation, not a core holding.

 

7. Diversify across cycles, not headlines.

The strongest portfolios into 2026 will combine quality equities, steady bond carry and selective exposure to structural themes such as domestic capex, financialisation and energy transition—rather than chasing short-term global cues.