Capex to Consumption: 4 Big Themes That Could Drive India’s Market Revival in 2026

Synopsis: Indian equities may gradually recover in 2026, driven by capex revival, financials’ re-rating, consumption rebound, and auto sector growth. Stabilising macros, earnings recovery, and reforms underpin selective opportunities amid cautious market breadth.

The end of a challenging year for Indian equities will see investors return cautiously but optimistically toward 2026. Improved macroeconomic conditions and liquidity, combined with potential net FII investment inflows and the perception that corporate earnings have stabilised to near their lowest, will all assist in this gradual recovery process. 

For the time being, even if there are signs of improvement in the general investing environment, the market is likely to experience further consolidation and a lack of broad-based market breadth. Investors need to position themselves to take advantage of selective investment opportunities rather than expect a broad-based rally.

Capex Revival

Capital expenditure-linked sectors are emerging as key beneficiaries of India’s growth agenda. Reforms, valuation corrections, and clearer growth visibility have made these sectors more attractive. Brokerages are particularly overweight on capital goods, defence, electronics manufacturing services (EMS), and select real estate companies. The rationale lies in under-ownership by investors and an improving earnings outlook, which together could provide upside as infrastructure and industrial investment gain momentum.

Stocks likely to benefit from India’s capex revival include L&T, Siemens India, Thermax, Bharat Electronics, HAL, Bharat Dynamics, Cyient, Avalon Technologies, Syrma SGS, and Texmaco Rail. 

These companies are positioned to gain from rising infrastructure spending, defence modernization, electronics manufacturing, and industrial investment, offering strong growth potential as capital expenditure picks up.

Auto Sector Boost

The automobile industry has seen many positive drivers, which include decreased GST rates, new vehicle launches, increasing adoption of Electric Vehicles (EVs), and a trend to “premiumize” vehicles. All of these drivers support both the recovery of demand and the growth of the margins for automotive companies, making the automotive industry one of the more attractive areas of investment in the broader discretionary consumer sector. Investors can seek to invest in both traditional and electric vehicle manufacturers to take advantage of structural growth.

Automotive companies such as Maruti Suzuki, Tata Motors, Mahindra, Bajaj Auto, Hero Moto Corp, TVS, and Eicher Motor have benefited from increasing vehicle demand, along with new product launches, helping both to increase sales and increase margins.

EV-related automotive and component companies include Sona BLW, Exide Industries, Amara Raja, Minda Industries, Varroc Engineering, and LTTS. These companies are benefiting from the increase in demand for electric vehicles, as many provide critical components like motors, batteries, axles, and various electric vehicle components, allowing each of these companies to grow significantly as part of India’s transition to electric vehicles.

Financials in Focus

With an uptick in credit growth hitting its highest level in 12 months, manageable inflation, and an ever-improving regulatory environment, many analysts are now looking closely at the financial services sector, which includes banks and other lending institutions, for investment opportunities. 

Many analysts predict that banks and other lending institutions may potentially receive a re-rating from a valuation standpoint in light of the positive earnings surprises being reported after nearly two years of subdued performance within this sector. Overall, the high quality of fundamentals coupled with the attractive valuations present significant potential for financials to be a leading factor in market recovery in 2026.

With the rising demand for credit, increased collection rates, and continued regulatory support to bolster their business, non-banking financial companies (NBFCs), such as Bajaj Finance, HDFC Ltd, Shriram Finance, Cholamandalam, Poonawalla Fincorp, Muthoot Finance, and Manappuram Finance, stand to gain significantly from the potential for growth within this sector.

Consumption Comeback

Consumer spending is anticipated to improve significantly due to a combination of factors, including reductions in GST, a significant decrease in inflation, increasing wages, the virtue of new tax relief measures and the rapid growth of rural consumption indicators. Consumer discretionary sectors (alcohol, jewellery, hotels and urbanisation-driven businesses) are preferred by experts over staples-related sectors due to increased confidence in the likelihood of an increase in discretionary spending by households, especially those residing in urban areas, as the economy improves. 

Stocks poised to benefit from a consumption comeback include Titan, Rajesh Exports, United Spirits, United Breweries, Radico Khaitan, Jubilant Foodworks, Westlife Development, ITC Hotels, and Indian Hotels. These companies stand to gain from rising urban spending, premiumisation, and stronger demand in jewellery, alcohol, dining, and hospitality.

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