'Midcaps may outperform large, small caps'

After a tepid performance by secondary markets in 2025, Nilesh Shah, MD, Kotak AMC, expects things to improve in 2026.

- NILESH SHAH, MD, KOTAK AMC

Shah tells Joydeep Ghosh that midcaps could outperform large and small caps, though margins may be narrow. Excerpts:2025 was a slow year for the stock market. How do you see 2026, in terms of performance?

2025 has indeed been a subdued year for Indian equities, with the Nifty and Sensex delivering modest single-digit returns amid global uncertainties, FII outflows, and a correction in broader markets. Yet, India's structural growth story remains intactdriven by domestic consumption, infrastructure push, and policy reforms.

Looking ahead to 2026,I am cautiously optimistic. Earnings growth is likely to rebound into double digits in FY27, valuations have normalised from peak premiums, and domestic liquidity through SIPs and DIIs continues to provide strong support. We may see moderate equity returns, anchored in fundamentals/ earnings growth rather than multiple/ valuation expansion. Midcaps could outperform large and small caps, though margins may be narrow. Focus on quality-sectors with structural tailwinds like financials, consumption discretionary, capital goods, infrastructure, IT leveraging AI, defence, and select manufacturing.

IPOs, however, did remarkably well for the entire year. Do you see the enthusiasm sustaining?