Mumbai: Blue-chip stocks are the preferred equity bets in 2026 compared to their smaller peers, as they are better positioned to benefit from foreign investors potentially turning bullish on India again, according to money managers.
"We like large caps in the new year over mid and small caps because they offer valuation comfort and earnings growth of around 12-14%," said Mahesh Patil, CIO, Aditya Birla Sun Life AMC. "When the foreign investors make a comeback in India, they are expected to deploy funds in large caps as they are oversold in this segment."
The stock market ended 2025 on a buoyant note on Wednesday - the last day of the year's trading, with both indices gaining up to 0.7%.
In 2025, Nifty, comprising blue-chips, gained about 10.5% while the broader market remained under pressure. The Nifty Mid-cap 150 rose 5.4% but the Nifty small-cap 250 dropped 6% in the same period.
A majority of the 31 stock market participants, including fund managers and brokers, polled by ET on the equity outlook, said the Sensex and Nifty are likely to gain between 8% and 14% in 2026. More than half the poll participants said the Nifty could advance to 28,000 to 29,500 levels, while the Sensex to touch 94,000-96,000 levels in 2026. Despite the drop in various small-cap stocks in 2025, fund managers prefer large-caps and mid-caps in that order.
"Nifty is expected to deliver double-digit earnings in 2026, and the mid-cap earnings are expected to outpace large-cap earnings while the valuations are at a slight premium to their historical valuations," said Shibani Kurian, senior fund manager & head - Equity Research, Kotak Mutual Fund.
Mid-caps could provide opportunities in a bottom-up stock market, she said. "Small-cap stocks are trading at a significant premium to their historical valuations, and the earnings in the space are likely to be muted as well," said Kurian. "Investors should stay cautious in this segment."
Some fund managers believe that while small caps remain expensive on an aggregate basis, there are pockets of opportunities in the space. "Initially, large-cap stocks are expected to lead the gains in the market as they are poised better in terms of valuations, but while they offer stability, the growth is expected to be steady and gradual in this segment," said Chirag Mehta, CIO, Quantum Mutual Fund.
Incrementally, small-cap stocks could gain traction after the time-wise and price-wise correction they have witnessed and benefit from improving growth in the economy as we go ahead, said Mehta, who prefers small-caps over mid-caps.
"About 60% of your portfolio can be tilted in favour of large caps while 40% can be allocated to small caps," said Mehta. "Midcaps at this point look slightly expensive, and hence a lower and selective allocation can be carved out." In the past three years, benchmark Nifty jumped 44.3% while Nifty Midcap 150 and Nifty Small Cap 250 indices surged 87.4% and 76%, respectively.
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