The Indian stock market witnessed a brutal first half in 2026. The benchmark index Nifty 50 dropped almost 9% in the first half of the year (H1CY26), with stocks such as Infosys, TCS, Wipro, and HCL Technologies plunging 34-38% during the period.
Middle East conflict, elevated crude oil prices, persistent FPI outflows, rupee’s weakness, and weak earnings kept the market under pressure.
While geopolitical risks and macroeconomic concerns have eased significantly, market participants still appear apprehensive about the market’s performance in the second half.
After a heavy drubbing in the first half, will the market rebound in the second half and the year in the positive?
Indian stock market outlook
Nifty’s performance in the first half of the year has been worse than in 2022. In 2022, the index fell 9% in the first half but witnessed solid gains in the second half to end the year with a modest 4% gain.
Some experts believe the market may see a solid rebound in the second half due to lower oil prices, the rupee’s stability, and the return of foreign investors as AI-frenzy cools.
“Geopolitical anxieties appear to be receding, and with them, the era of sharp rupee depreciation seems to be drawing to a close, paving the way for greater currency stability,” said , MD and CEO, HDFC Securities.
“FY27 earnings growth may outpace FY26, and with Nifty currently trading at a reasonable 20 times FY27 EPS, valuations appear attractive for investors looking to position ahead of this acceleration,” said Relli.
Pankaj Pandey, the head of research at ICICI Securities, is positive about the Indian stock market, as he expects the Nifty to end the year in the green.
“We expect the second half to be better, as most macroeconomic concerns are easing and the worst of FPI selling appears behind us,” Pandey told Mint.
Sectors that can give healthy returns
Pandey expects the banking stocks may do the heavy lifting, as most macroeconomic conditions are turning favourable for the sector.
“Credit growth is improving, particularly in corporate lending, where activity has started picking up after a prolonged slowdown. Deposit mobilisation is also showing signs of improvement, which should support banks’ earnings,” said Pandey.
Beyond banking, Pandey observed that several other sectors also look well-placed.
“Oil and gas companies could benefit from the decline in crude oil prices, while infrastructure-related companies are also expected to perform well. With the exception of IT, most sectors appear well-positioned, including automobiles,” said Pandey.
Pandey underscored that auto companies, which have been facing margin pressure due to elevated input costs such as metals, plastics and rubber, may benefit from cooling commodity prices, which should support margin recovery for them.
Ajit Mishra, SVP- Research at Religare Broking, believes that in the second half of the year, alpha opportunities in the Indian stock market may emerge from defensive sectors and domestic capex-driven themes.
As per Mishra, the power and renewable energy infrastructure space remains a compelling structural growth story, supported by rising electricity demand, ongoing grid expansion, and sustained investments in the energy transition.
Ravi Singh, Chief Research Officer at Master Capital Services, said the second half of the year may reward investors who focus on sectors backed by strong earnings visibility and structural growth rather than short-term market momentum.
Singh is positive on capital goods, infrastructure, defence, financials, power and pharmaceuticals.
He believes government-led capital expenditure, rising private investments and a healthy pipeline of infrastructure projects continue to support engineering and capital goods companies.
“Investors should adopt a staggered investment approach and use market corrections to accumulate quality businesses, as stock selection is likely to play a much bigger role than broad market direction in the coming months,” said Singh.
As per Singh, defence remains a long-term opportunity as India pushes for self-reliance, higher domestic manufacturing and exports.
The power sector is also entering a strong growth phase, driven by increasing electricity demand, renewable energy expansion and investments in transmission infrastructure, Singh said.
Moreover, financials, especially leading private banks, continue to offer attractive opportunities as credit demand remains healthy and asset quality stays robust, while pharmaceuticals can provide stability to portfolios due to resilient domestic demand and improving export prospects, said Singh.
Stocks to buy
Pandey prefers leading tier-1 PSU and private sector banks in the banking space. Within automobiles, his preferred picks are Maruti Suzuki, Mahindra and Mahindra, and Apollo Tyres.
On the consumption side, he likes paint companies such as Asian Paints and Pidilite Industries.
Among FMCG companies, his preference is Tata Consumer Products, Marico and Nestle India, as he expects these companies to benefit from lower raw material costs since around 10-15% of their input costs are linked to crude oil and its derivatives.
Within Religare Broking’s coverage universe, Mishra remains constructive on Power Grid Corporation, PFC, REC, Suzlon, and Inox Wind, which, as per him, are well-positioned to benefit from the continued expansion of power and renewable infrastructure.
Additionally, Lupin and Lemon Tree Hotels are expected to deliver healthy performance, supported by their respective sector-specific growth drivers, said Mishra.
Singh said for the medium term, he prefers fundamentally strong businesses with sustainable earnings growth rather than chasing high-beta momentum stocks.
“My preferred names include Larsen & Toubro, Bharat Electronics, HAL, Siemens, ICICI Bank, HDFC Bank, NTPC, Cummins India and Sun Pharmaceutical,” said Singh.
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Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.