Capital markets to grow steadily in FY26: smallcase

Capital markets are projected to grow steadily in FY26, aided by expected GDP growth of 6.2-6.5 per cent and domestic demand. As per smallcase managers, Nifty 50 would deliver 12-15 per cent returns, with EPS estimates around ₹1,160. Foreign portfolio investors (FPIs) have shown renewed confidence injecting over $4 billion in recent sessions.

Despite the global trade tensions, US tariffs, geopolitical uncertainty posing as key risks, smallcase managers expect equities to outperform other asset classes in FY26 due to favourable valuations and strong growth outlook.

According to Robin Arya, smallcase Manager and Founder, GoalFi, this year will be of consolidation with earnings improvement in companies and theme-based investing will be prevalent.

“A cautiously optimistic outlook for FY26 is justified. Key positives include a stable government, the prospect of lower interest rates and potential earnings rebound. While global trade tensions remain a concern and could pose intermittent risks to market momentum, corporate earnings continue to show resilience particularly in the banking, auto and infrastructure sectors,” Arya added.

Shailesh Saraf, smallcase Manager and Founder, Value Stocks, noted that nearly 878 companies reported their earnings with a 10 per cent year-on-year growth in Q4FY25.

Sectoral outlook

On sectoral front, smallcase expects defence sector to grow robustly in FY26, with defence electronics projected to grow at 10-14 per cent CAGR. Private players are expected to post 25-40 per cent EPS CAGR.

The consumer sector would rebound with a 13 per cent earnings growth. Easing input costs, rural demand recovery due to normal monsoon and rising real wages and personal income tax cuts would be key drivers, according to smallcase.

Sectors like electronics, pharma, auto and auto components, and textiles will be in focus till the tariff wars wane. The investment firm continues to remain positive about sectors such as infrastructure, BFSI, electronics, automobiles, consumer/FMCG, renewable energy, while remaining cautious about IT, pharma,chemicals, capital goods and real estate.

Published on May 20, 2025