Moneycontrol Pro Panorama | Rooting for a home run

Competitive pressures and market uncertainty are sources of worry.

Dear Reader,

As the New Year begins, it’s time for investors to start accumulating new data and signals to assess where markets are headed. Today, the HSBC India Manufacturing PMI came in at 55, falling from 56.6 in November, a nine-month low, which is a bit of a dampener, but the number is still healthily above the 50 mark that separates expansion from contraction.

The PMI release said Indian goods producers expect higher output in 2026 compared to present levels, but overall sentiment has fallen to its lowest levels in three-and-a-half years. Competitive pressures and market uncertainty are sources of worry. But inflation continues to show a benign trend both on the input cost front and on output.

This may not be the news equity investors may have wanted to start the year with, as they keep a keen eye on the expected uptrend in earnings growth. Much of it depends on the domestic market.

Ananya Roy writes in today’s edition on the outlook for equities, with hopes rising on the back of expectations of improved earnings growth. But investors need a sound strategy for 2026 instead of a buy-everything approach or going for a higher risk-return one. Consumption revival, growing confidence in the BFSI sector and large-caps as a preferred asset class are the key elements of this strategy, according to her analysis.

The BFSI sector indeed has a lot going for it, and Dinesh Unnikrishnan shares a slice from the RBI’s Financial Stability Report on how NPA levels have fallen to very low levels, with clean balance-sheets ready to drive the economy forward. “Perhaps the most telling shift is among large borrowers. They still command roughly 44 percent of total bank credit, but their share of gross NPAs has dropped to about a third. The GNPA ratio for this cohort has halved over the past year and a half. This reflects years of deleveraging, better cash flows and, crucially, the deterrent effect of the Insolvency and Bankruptcy Code.” Since these also likely to be the large-caps talked about, 2026 may be the year of the big companies outperforming, after all. But there are pockets of stress that still need to be watched over, so that they don’t turn into a headache down the road.

While BFSI is one big chunk of the equity market, another meaty one is the IT sector. Artificial intelligence has been the newest opportunity and challenge for the sector.

This is even as the sector has been more about promise than performance. As Prosenjit Datta points out, “And yet, at the end of the year, it was more a case of AI flattering to deceive. Agentic AI, which was supposed to take over operations in all companies, has barely got off the ground. Even big, AI-savvy corporate clients are dipping their toes – with pilot projects and not full-scale rollouts. The LLM race has slowed down – a number of new models showcased and launched by Silicon Valley’s finest have proved to be barely better than their predecessors. In fact, in some cases, discerning users have complained that some of the new launches were actually worse than their predecessors.”

Even then, Indian IT companies are not taking chances, making investments to capitalise on AI taking off in a big way among their enterprise clients. R Sree Ram writes about the investments that companies are making, both through acquisitions and investing in technology and skills upgradation of employees. All of that costs big money, though. Shareholders will want to see the returns on those.

“Striking the right balance between investments, costs and contract prices will be important for IT companies. Amid the rising investments, companies have to ensure steady profitability and return ratios. Also, one has to see if the companies will temper cash pay-outs to investors due to current large investments. Note that revenue growth slowed across the industry in 2024-2025,” he writes.

While these are the big picture scenarios for investors to grapple with, a small but highly visible sector came in for some harsh treatment in the New Year. The government’s revised excise duty rates on cigarettes dealt a shocker to cigarette stocks, which have been falling two days in a row. Initial expectations were that the overall tax outgo will remain the same and the excise duties will replace the GST compensation cess as a taxing mechanism. But the announced rates point to estimates of a tax increase of around 34% that may necessitate price hikes of around 20%. But these increases will depend on various factors including the cigarette length, and some broker reports point to tax increases of as much as 50%. While we wrote about whether taxation has returned as a policy risk for cigarettes, our research team has taken a close look at whether ITC has turned attractive after a sharp fall in its share price. If you are wondering whether you should buy, sell or hold, then head here for answers. 

Investing insights from our research team

Is ITC a good buy, post correction triggered by the tax shock?

Why this affordable housing play deserves attention

Weekly Tactical Pick: Does this chemical stock warrant attention, post recent correction?

What else are we reading?

Taxation returns as policy risk for investors in cigarette stocks

RBI Financial Stability Report: Banks’ clean-up is real -- but the hard work isn’t over yet

After a trying 2025, investors need a sound strategy for 2026

Indian IT should strike a fine balance as AI investments take off

Why bond investing in 2026 will be like batting on a sticky wicket

Governance wake-up calls from 2025: Essential lessons for a stronger 2026

The shape of AI to come in 2026

Why China is doubling down on its export-led growth model (republished from the FT)

Is Budget 2026 ready to make solar India’s most competitive energy source?

Vault Matters: Can RBI Gov Malhotra get the elephant out of the forest?

Why western media continues to misrepresent the RSS 

Markets

2025 added returns, not acceleration, to Indian equity compounding

Tech and Startups

Five years of Techade: AI lifts productivity, caps headcount, reshapes IT cost structures

Technical Picks: BHEL, IndusInd Bank, REC, Bajaj Finance 

Ravi Ananthanarayanan

Moneycontrol Pro