New Delhi. 2025 was a year for the Indian stock market in which despite domestic investment, returns were weaker than expected. High valuations, cut in earnings and limited interest from foreign investors kept the market momentum limited. Despite this, the market did not collapse completely and big stocks performed better than mid and small caps. Kotak Institutional Equities believes that this stagnation will form the foundation of recovery in 2026. According to the report, the coming year may prove to be better for the market on the basis of earnings, domestic demand and macro stability.
Kotak says that the market can get three major supports in 2026. First is earnings recovery, second is improvement in domestic consumption and third is more stable macro environment. Consumption demand is expected to strengthen due to income tax cut, GST related benefits and softening of interest rates.
Why the market remained sluggish in 2025
According to the report, despite the support of domestic funds in 2025, the market returns remained average. The main reasons for this were high valuation, weakness in profit growth and earnings downgrade. During this period, the annual gain of Nifty 50 was limited to about 9 percent.
Why did large caps perform better?
Kotak’s assessment shows that in the uncertain environment investors preferred large cap stocks. There was more volatility in mid and small caps, while the performance of big stocks was divided according to sector.
What changes were made to the portfolio
Kotak has made some important changes in its model portfolio. Dixon Technologies has been associated with 150 basis point weight. The company is expected to benefit from PLI scheme, joint venture and strong long-term growth drivers.
Trust in Indigo and Housing Finance
The stake in InterGlobe Aviation i.e. Indigo has been increased after the recent correction. Kotak believes that despite short-term problems, its leadership in aviation remains intact. Aadhar Housing Finance has also been included in the portfolio due to its reasonable valuation and stable growth.
Which stocks were distanced from?
After better returns, Torrent Pharmaceuticals has been removed from the portfolio. Apart from this, the weight in Bharti Airtel and Reliance Industries has been reduced, which is said to be a part of rebalancing.
What does the earnings outlook say?
According to Kotak’s estimates, the net profit growth of Nifty 50 may be 18 percent in FY2027 and 15 percent in FY2028. Sectors like financials, metals, oil gas and telecom can make the biggest contribution to earnings. However, the report also makes it clear that some parts of the market are still expensive, hence selective investment will be very important.
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