Winners for FY26: Equirus picks its favorites; check the sectors

Kolkata: As the equity markets are trying to scramble back riding the initial announcement on GST reforms after suffering the turmoil of the tariff-related announcements by US President Donald Trump, Equirus Securities’ annual India Equity Strategy report has picked the sectors that it is bullish on. The picks are for the current financial year FY26. The report has observed that India is in a position to enjoy a long-term growth story but there are shorter-term concerns from stretched valuations and sluggish earnings.

The brokerage has expressed bullish sentiment on large-cap stocks. It has said that it is overweight on eight sectors such as auto, capital markets, cement, FMCG, infrastructure, internet platforms, NBFCs and Oil & Gas. The sectors on which Equirus is underweight are building materials, industrials & defence, real estate, textiles and logistics. It has justified its outlook on these sectors due to stretched valuations and earning concerns. Equirus professed a neutral stance on chemicals, banks, consumer durables, IT services, metals & mining, healthcare and retail.

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Equirus Securities research head Maulik Patel was quoted in the media as saying, "Large caps provide the best margin of safety, mid-caps should be approached selectively in structural growth areas, and small caps warrant caution until earnings catch up.”

Equirus said large caps and quality mid-caps are expected to lead as valuations and earnings expectations re-align. It also says that small-cap valuations have attained new peaks. The small-cap forward P/E ratio stands at 1.25x versus a long-term average of 0.88x, just below the peak of 1.3x. On the category of mid-caps it has said that they too suffer from elevated valuation but they have better promise of earnings compared to small caps.

The brokerage is especially positive on companies which have a high exposure in the rural markets. Better than average monsoons (tat augurs well for kharif sowing and the resultant impact on farm incomes) and optimistic farm output have raised hopes of vigourous demand. Rural consumption could become a bright spot. Since late last year, rural wages have been rising. The report noted that in May this year, rural wages grew 3.6%.

The macro push

There are a few tailwinds to the macro economic scenario. Retail inflation has fallen below 2% and there is liquidity in the market. Though there might be a brief pause in the capex in a climate dominated by tariff uncertainty, the longer term capex spending will remain intact. Government PLIs will remain alive and there will be supply chain diversification benefitting India.

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Advice for retail investors

Have a bias in favour of large cap stock since they will have stable earnings and reasonable valuations. One should be on the lookout for structural growth in mid cap stocks but should not chase them blindly. Investors should eb specially vigilant on small cap stocks as they could be victims of stretched valuation and earnings downgrades. Stock which depend on rural consumption can be winners. The brokerage has said that SIPs in mutual funds should be continued.