Here’s how to read the setup.
What the 2-year snapshot is telling us
- 2024 winners → 2025 laggards
- PSU banks, defence, railways, capital goods, and parts of infra saw valuation fatigue in 2025 after massive rerating in 2023–24.
- Earnings stayed decent, but price ran ahead of fundamentals.
- 2024 laggards → 2025 stabilisers
- IT, FMCG, select private banks, chemicals, and pharma stopped underperforming as earnings visibility improved and downside risk got priced in.
This is classic late-cycle rotation behavior, not a market breakdown.
Will 2025’s losers become 2026’s winners?
✅ Likely to outperform (selectively)
1. IT Services
- Deal pipelines improving, US rate cuts supportive
- Valuations back near long-term averages
- Not a 2020-style rally, but steady relative outperformance likely
2. FMCG / Consumption
- Volume recovery > pricing
- Rural demand + margin normalization
- Leadership likely from companies with premiumization + rural reach
3. Private Financials (non-PSU)
- Credit costs stabilizing
- PSU banks may not repeat past outperformance
- Market may rotate back to RoE + governance premium
⚠️ Will not broadly outperform
PSU, defence, railways (as a group)
- Structural story intact, but:
- Earnings growth normalizing
- Valuations already discount 3–4 years of growth
- Expect stock-specific performance, not sector-wide rallies
What decides whether rotation sticks in 2026?
1. Interest rate trajectory
- Rate cuts → IT, NBFCs, consumption benefit
- Sticky rates → banks & value stocks retain edge
2. Earnings breadth
- Rotation sustains only if earnings growth broadens beyond capex themes
3. Global risk appetite
- FII flows tend to favor under-owned, liquid sectors during rotation phases
Key takeaway
- Rotation is already happening, but 2026 won’t be a simple “losers bounce”
- Expect:
- Sector → stock-level leadership
- Momentum → earnings + valuation discipline
- The biggest risk is assuming every 2025 underperformer becomes a 2026 winner
If you want, I can:
- Break this down sector-by-sector with return probability
- Map 2026 rotation plays vs defensives
- Or analyze this from a portfolio allocation lens (core vs satellite)
Just tell me how deep you want to go.
