With FY25 now in the rearview mirror, investors are gearing up for what FY26 has in store. The past year was packed with surprises—from global uncertainty to India’s resilient growth story. And as always, a new financial year brings new sectoral winners.
So, if you’re wondering where the smart money might be moving, here’s a breakdown of the sectors that could make headlines (and possibly portfolios) in FY26.
1.Capital Goods – Still in Expansion Mode
Capital goods stocks witnessed an extraordinary rally through FY24 and FY25, thanks to robust government-led infrastructure spending and private capex revival. This trend is expected to remain strong in FY26 as India continues its focus on becoming a manufacturing powerhouse under initiatives like Make in India and the Production Linked Incentive (PLI) scheme.
Why it matters in FY26:
- Continued government capex push, especially ahead of general elections
- Capacity expansion in core sectors like steel, cement, and power
- Railways, defence, and energy modernization plans
Companies like L&T, Siemens, and BHEL are poised to benefit from multi-year order visibility and improved margins.
2.Defence – National Security and Export Potential
Defence is slowly transforming from a policy priority to an investor favourite. The government’s focus on indigenization, higher budget allocation, and increasing defence exports have placed this sector in the spotlight.
FY26 tailwinds:
- Consistent rise in budget allocation (over ₹6 lakh crore defence budget in FY25)
- Record-high export orders from countries in Africa and Southeast Asia
- Rapid execution of Make in India defence contracts
Stocks like HAL, BEL, Mazagon Dock, and Data Patterns are witnessing strong order inflows and improving fundamentals.
3.Electric Vehicles (EVs) and Green Energy
The shift to sustainability is not slowing down. FY26 could be the year India sees serious traction in EV adoption and green energy implementation. With fuel prices staying volatile and urban EV infrastructure improving, more manufacturers are doubling down on R&D and rollout.
Key triggers:
- Faster EV adoption due to incentives and rising fuel costs
- Surge in renewable energy investments (solar, wind, hydrogen)
- Battery production, storage, and grid innovation getting attention
Look out for companies in lithium battery production, green hydrogen, and EV component manufacturing like Tata Power, KPIT Technologies, and Exide Energy.
4.Real Estate and Housing Finance – Getting Its Second Wind
The sector cooled off a bit in FY25, but don’t count it out. With interest rates expected to soften and urban demand picking up, FY26 could see a fresh rally—especially in affordable and mid-segment housing.
Why it might bounce back:
- Demand revival in tier-1 and tier-2 cities
- Government incentives for affordable housing
- REITs gaining traction among retail investors
Developers like Oberoi Realty, Macrotech Developers, and NBFCs like HDFC Ltd. and LIC Housing Finance may witness increased traction.
5.Pharma and Healthcare – Regaining Momentum
After a relatively muted FY25, the pharma and healthcare sector is back on radar due to rising global demand for generics, strong USFDA approvals, and investments in innovation.
Tailwinds to watch:
- Surge in global demand post-COVID supply chain shifts
- Margin expansion with new drug launches and API exports
- Focus on digital health and diagnostics in India
Players like Sun Pharma, Cipla, Divi’s Labs, and Dr. Lal PathLabs could benefit as the sector rebounds.
6.PSU Stocks – Reform-Led Re-Rating
Public sector undertakings (PSUs) have undergone a re-rating in the past year, driven by policy support, improved efficiency, and dividend payouts. FY26 could see further gains, especially in railways, energy, and defence.
Why PSUs still have legs:
- Government monetization and divestment programs
- Strong cash flows and high dividend yield
- Undervalued compared to private sector peers
Examples include IRFC, RVNL, Coal India, and ONGC—all showing improved fundamentals and investor interest.
7.Banking and Financial Services – Steady but Selective
Though the big run in banks might be behind us, FY26 could still be positive for selective players—especially in the PSU and mid-sized private banking space.
FY26 opportunities:
- Strong credit growth in retail and MSME segments
- NPA levels at multi-year lows
- Financial inclusion and digital transformation underway
Keep an eye on Canara Bank, Federal Bank, and Cholamandalam Finance, which are showing strength in both performance and management quality.
Final Thoughts: Balance, not FOMO
While it’s tempting to go all-in on sectors that performed well last year, FY26 demands a more nuanced approach. Economic recovery, global cues, interest rate trends, and political stability will all play a role in shaping sectoral leadership.
As always, diversification and timely review of sectoral allocations are crucial. Don’t just chase momentum—follow the fundamentals.
