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Dear reader, as 2025, a year of global tumult and volatility, rolls by, Mint's reporters and columnists look around the corner on what is coming in 2026—to help you know what to expect and prepare for it. Tell us what you think at feedback@livemint.com.

This year, gold and silver outshone equity markets as foreign investors pulled out of Indian stocks amid high valuations and tepid earnings growth. The tables may somewhat turn in 2026 as experts bet on the return of overseas buyers and bullion to remain range-bound. Yet, uncertainty is expected to prevail for small- and mid-caps, and large-caps are most likely to continue outperforming, according to market participants. Also, the market regulator’s clampdown on futures and options to protect retail investors did yield some results this year. But the real picture will emerge only next year.

Here’s what 2026 holds for equity investors:

Foreign portfolio investors (FPIs) have staged one of their sharpest retreats from Indian equities in recent years, pulling out $17.9 billion in 2025 so far. The outflow is the largest among major emerging markets this year, signalling a decisive shift in global risk appetite. Investors are rotating out of expensive markets and reallocating to regions offering clearer policy signals and more attractive valuations.

Japan has emerged as the only standout beneficiary of this shift, drawing a massive $45.7 billion in FPI inflows—its strongest run in years. Across the rest of Asia, capital outflows continued but remained significantly smaller than India’s exodus. Taiwan has seen withdrawals of $8.6 billion, followed by Malaysia at $4.9 billion, South Korea at $5 billion, Vietnam at $4.8 billion and Thailand at $3.1 billion. Indonesia recorded outflows of $1.3 billion, while the Philippines saw outflows of only $879 million.

Analysts expect the FPI narrative for India to improve meaningfully in FY26. While domestic buying remains strong, the key shift hinges on overseas investors returning once currency volatility settles and global risk appetite broadens beyond the US AI trade. India’s structural transition toward lower inflation and softer interest rates, along with consistent earnings upgrades, is expected to re-anchor its attractiveness.

After three consecutive years of relentless gains, bullion enters 2026 with immense popularity and a sharper question hanging over it: could crowded bets on gold and silver blunt future returns?

Gold’s surge has been unusually powerful and broad-based. It soared nearly 80% in 2025 after rising 26% and 15% in 2024 and 2023, respectively. Gold hit more than 50 all-time highs in 2025, driven by aggressive central bank buying, war-related safe-haven demand and expectations of Fed rate cuts.

Silver followed the same path but with far bigger swings. It climbed 155% in 2025, following strong double-digit gains in the last two years, on both investment demand and its growing use in solar panels, electric vehicles and electronics.

Gains for 2026 may be far more measured, with a more cautious US Federal Reserve, elevated real US treasury yields and cooling price momentum likely to keep bullion range-bound.

Experts remain optimistic about gold, citing central bank diversification. The World Gold Council forecasts gold to trade within a range of –5% and +5% in 2026, though a growth slowdown or geopolitical risks could trigger gains of 5-30%. Silver is anticipated to trade between $48 and $70 an ounce in 2026, with possible spikes to $75 if rate cuts accelerate or industrial demand spikes.

Indian investors have turned markedly more selective in 2025, with the market’s leadership shifting decisively back to large-cap stocks. The Sensex has gained 9.3% so far this year, closely mirroring the 9% rise in the BSE LargeCap index. In contrast, both small- and mid-cap (Smid) segments have struggled to hold ground after two years of an exceptional rally.

The BSE SmallCap index, which had surged 47.52% in 2023 and 29.31% in 2024, has fallen over 6% in 2025, marking its sharpest underperformance in five years. Midcaps have also stalled, delivering flat returns versus the blockbuster 45.53% and 26.07% gains in the previous two years. The widening gap signals a strong rotation toward stability, earnings visibility and liquidity—factors that have favoured large-cap stocks through a volatile global backdrop.

The small- and mid-cap (Smid) space is hard hit as stretched valuations in this segment have become difficult to justify, with multiples now nearly double their long-term averages. Yet, selective opportunities are emerging across financials, IT and consumer durables. Market strategists highlight that the valuation divide is partly structural, as Smid baskets favour higher-growth sectors, justifying richer multiples.

Still, this cycle of large-cap outperformance is likely to continue even next year amid a broader valuation reset.

After years of runaway speculation that saw trading in futures and options (F&O) explode, 2025 became the year Sebi finally intervened. With average daily notional turnover on the National Stock Exchange (NSE) and BSE doubling every year for roughly five years, it peaked at ₹537 trillion in September 2024.

Following this, the market regulator rolled out a series of curbs throughout 2025: tighter risk disclosures, restrictions on far-out-of-the-money contracts, a hike in securities transaction tax, stricter margin rules and a sharp cutback in weekly expiries.

The impact was pronounced. By the September quarter of FY26, overall derivatives activity had plunged 20% compared to the previous year—the first meaningful cooling since the boom.

While derivative activity cooled, the appetite for risk did not vanish— it simply moved elsewhere. India’s margin trading book jumped 44% year-on-year to nearly ₹1.2 trillion by November, as retail traders shifted leverage from options into the cash market, according to experts. In essence, 2025 wasn’t about falling risk appetite, but a rotation. Traders moved from rapid-fire weekly options to larger monthly bets, margin-funded stock trades and, in some cases, small- and mid-cap speculation. The true test for 2026 is whether Sebi’s clampdown has genuinely made markets safer—or whether the underlying risk has merely been rerouted.

After peaking in September last year, Indian equities endured a wobbly ride, only recently returning to fresh highs amid continued market volatility. Despite some recent decline, valuations remain elevated, with more than a quarter of listed firms trading at lofty valuations, above 40 times their earnings, signalling expensive pockets persist in the market despite a cooling sentiment through 2025. Nearly 15% of BSE-listed firms currently command P/E multiples above 80x. Another 10.6% sit in the 40–60x band, while 15.4% trade at 25–40x, reinforcing that elevated valuations remain deeply entrenched even as earnings momentum has normalised this year. Roughly 24.7% of listed firms now trade at a more reasonable 10–25x P/E.

India’s valuation premium is even more striking in a global context. The Nifty 50 trades at a 12-month forward P/E of 24.3 times —well above most major Asian peers and higher than several developed-market benchmarks. Among major indices, only the S&P 500, at 25.2x, commands a richer multiple. In contrast, Taiwan’s Taiex (22.8x), Japan’s Nikkei 225 (22.2x) and Indonesia’s Jakarta Composite (21.5x) all trade at lower valuations. India has carried this pricey tag for years, and 2026 is expected to be no different.

While the headline indices largely remained range-bound, only a handful of sectors saw meaningful gains this year. Public-sector banks have emerged as the year’s standout performers. The Nifty PSU Bank index has surged 27% so far in 2025, supported by improving asset quality, stronger credit growth and continued institutional buying. Automobiles follow closely, with the Nifty Metal index up 24%, rising on premiumization and supply-chain normalization.

Auto (22%), financial services (17%) and private banks (15%) round out the list of top gainers. Defence-linked stocks too remain buoyant, with the Nifty India Defence index rising 20% year-to-date. Broader cyclical sectors have posted moderate returns. Commodities (15%) and infrastructure (13%) have held firm, while the consumption index has risen 8%, signalling uneven demand recovery across categories.

But amid rising volatility and tightening global liquidity, several pockets of the market slipped into negative territory. Defensives such as healthcare are down 1%, energy is flat, and pharma is lower by 3%. FMCG has declined 4% amid weakening rural demand and margin pressures.

The steepest fall, however, is seen in IT, which is down 10% so far this year, hurt by global spending cuts and cautious deal pipelines. Realty has dropped 16% and media was down 22%, making them the worst performers of 2025. Will the tables turn next year?

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