Daily Voice: Rohit Sarin expects financials, consumer discretionary sectors to drive equity markets in 2026

Rohit Sarin is the Co-Founder of Client Associates

Rohit Sarin, the co-founder of Client Associates, expects the financials and consumer discretionary sectors to drive equity markets in 2026.

"These sectors are well-positioned to benefit from improving domestic demand, credit growth normalization, and a potential recovery in consumption trends," he said in an interview to Moneycontrol.

According to him, the large-cap IT stocks are expected to retrace their value in 2026 as demand stabilises and global macro conditions improve.

Do you believe the dollar–rupee has entered the final phase of peaking, and that India’s macroeconomic fundamentals are improving?

India’s macroeconomic fundamentals have been in good shape for some time now, particularly with respect to inflation management, the strength of forex reserves, and a relatively contained current account deficit. These factors provide a strong underlying cushion to the economy and help absorb external shocks.

While the depreciation of the INR versus the USD in CY2025 has been relatively higher in the near term, it remains broadly in sync with long-term historical averages. From that perspective, the recent currency movement does not appear disorderly or structurally concerning. It is also plausible that the RBI has allowed the rupee to find its near-term equilibrium, especially to ensure that India’s export competitiveness is preserved in an environment where global trade dynamics are evolving and US tariff-related uncertainties persist. Overall, the currency movement seems more tactical than a reflection of weakening fundamentals.

What is your preference for 2026: Large-cap stocks or mid- and small-cap stocks?

Our preference for 2026 is tilted toward large-cap stocks. This is primarily because large caps are currently more favourably valued relative to mid- and small-cap stocks. In absolute terms as well, large-cap valuations appear reasonable when compared to their own long-term averages, offering a better risk-reward balance.

Additionally, large caps tend to provide greater earnings visibility, balance sheet strength, and resilience during periods of global uncertainty. Given the valuation divergence that has built up over recent years, large caps appear better positioned to benefit from any mean reversion in market leadership.

Do you expect large-cap IT stocks to make a strong comeback in 2026 after a prolonged period of underperformance? Among IT stocks, do mid-cap names offer a better opportunity, particularly as a play on rupee depreciation?

Large-cap IT companies are high-quality businesses run by competitive management teams, with an established track record of long-term performance across different market cycles. Despite the prolonged phase of underperformance, these companies continue to demonstrate strong execution capabilities, client diversification, and balance sheet strength.

We expect large-cap IT stocks to retrace their value in 2026 as demand stabilizes and global macro conditions improve. While rupee depreciation can provide some earnings tailwinds across the sector, our confidence remains higher in large-cap names due to their scale, consistency, and ability to navigate cycles effectively.

Despite ongoing challenges such as global growth concerns, geopolitical tensions, and uncertainty around potential Trump-era policy positions, do you expect the market to remain in a consolidation phase yet still deliver a 10–15 percent rally next year?

With Indian markets having time-corrected in 2025 and the INR now priced attractively against the USD, we expect mean reversion to play out in 2026. If domestic consumption begins to pick up in the first two quarters of 2026, it could act as a key trigger for improved earnings momentum.

Under such conditions, Indian markets are likely to attract higher allocations from foreign institutional investors, even if global volatility persists. This creates room for markets to remain range-bound for parts of the year while still delivering a reasonable upside over the full period.

Which sectors do you see leading earnings growth and driving equity market upside going forward?

We expect the financials and consumer discretionary sectors to drive equity markets in 2026. These sectors are well-positioned to benefit from improving domestic demand, credit growth normalization, and a potential recovery in consumption trends. Their earnings visibility and linkage to India’s internal growth engine make them central to the broader market narrative.