Investment guide: Where to invest in FY26? Analysts pick sectors to bet

Analysts recommend placing bets on rate-sensitives, hospitals, and power utility stocks

The topsy turvy financial year of 2024-25 (FY25), which saw extreme volatility in the second half amid record foreign outflows, is ending with low single digit returns for investors.

 

The frontline BSE Sensex and the NSE Nifty50 indices added around 4 per cent each during the outgoing financial year. In the broader markets, the Nifty Midcap 100 gained over 5 per cent, while the Nifty SmallCap 100 rose 1 per cent.

 

Sectoral investments, too, yielded mixed returns for investors where the Nifty Bank gained 7.63 per cent, the Nifty IT 6.55 per cent, and the Nifty Auto index 1.67 per cent.

 

 

On the downside, the Nifty FMCG lost 1.67 per cent, the Nifty Realty 9.35 per cent, and the Nifty oil & gas index 9 per cent.

 

"Among the sectoral indices, banking, and financial services have provided investors with moderate returns in FY25, that apart, majority sectors have been in a consolidation phase," said Kranthi Bathini, director - equity strategy, WealthMills Securities Pvt ltd.  Read: Missed the IPO bus? Time to buy selectively for the long-term, say analysts

 

Going ahead, however, analysts anticipate the new financial year 2025-26 (FY26) to reward investors with double-digit returns provided the Indian economy as well as India Inc’s corporate earnings see a steady pace of recovery.

 

Antu Eapan Thomas, senior research analyst at Geojit Investments Limited, for instance, expects the benchmark equity indices to yield 10 per cent year-on-year (Y-o-Y) returns in FY26, driven by earnings recovery starting from Q4FY25 onwards. He pegs Nifty50 at 25,800 by the end of March 2026, in his base case scenario.

Where to invest in FY26?

As an investment strategy, analysts suggest investors place their bets on rate-sensitive, hospitals, and power utilities stocks in FY26.

 

Explaining the rationale, Antu Thomas of Geojit Investments Limited said rate-sensitive stocks are expected to do well in the new financial year on expectations of lower interest rates, which will reduce borrowing costs and boost demand for loans.

 

“This is expected to improve the profitability of banks and non-banking financial companies (NBFCs) in the coming year, amid better credit offtake. Auto, real estate, and consumer durables sectors, too, will benefit from increased consumer affordability due to lower loan rates, aiding related stocks,” he said.

 

India’s retail inflation eased to a seven-month low of 3.61 per cent in February 2025, down from 4.31 per cent in January. Given this, UBS expects the Reserve Bank of India (RBI) to reduce repo rate by a total of 50 basis points (bps) in calendar year 2025 aided by a sharper-than-anticipated decline in inflation and improved liquidity conditions.

 

Dimplekumar Shah, MD & co-head investment advisory & distribution, JM Financial Services Ltd, too, suggests investing in rate sensitive sectors, albeit within the large-cap space.

 

That apart, he sees hospitals, and power utility sectors rewarding investors next year given earnings visibility.  Read: Dividend, rights issue: TVS Holdings, 5 other stocks to remain in focus

Sectors to avoid in FY26

That said, export-oriented sectors, prone to trade war amid US President Donald Trump’s tariffs, should be avoided in FY26, analysts noted.

 

Among them, the information technology (IT), pharma, oil and gas, and chemicals sector received a thumbs down from analysts.

 

“Dumping by Chinese companies and ongoing pricing pressure will also continue to impact chemical stocks in the near term,” said Thomas of Geojit Financial Services.

 

Among the inward-looking sectors, Dimplekumar Shah of JM Financial cautioned against select fast-moving consumer goods (FMCG) stocks due to a lack of volume growth and delay in price hikes.

 

“Capital goods-linked stocks, too, may be avoided in FY26 in the backdrop of lower capex intensity, high base, and weak visibility of private capex revival,” he said.