By Mitesh Kumar, CMT

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In a top-down approach for the Indian markets, identifying sectors poised to outperform the index over the next 3–6 months is critical. While 2025 was defined by volatility, early 2026 shows clear signs of sector rotation as capital moves from overheated segments into turnaround stories.

The 9-Month Leaders: Holding the Line

Looking at the 9-month Relative Strength charts, the heavy lifting for the index has been driven by two primary pillars:

• Metals (44%): Remains the standout performer. Global tailwinds—specifically Copper, Nickel, and Zinc prices—alongside domestic anti-dumping duties on Chinese steel, have kept margins robust.
• Auto (43%): Driven by significant GST rate cuts (moving from 28% to 18% for several categories) and a surge in EV adoption following the PM E-Drive incentives.

While Bank Nifty (19%) and Infrastructure (20%) have outperformed the benchmark, their growth has been more measured as the market prices in the 125 bps cumulative repo rate cuts seen throughout 2025.

The 3-Month Turnaround

The New Drivers

The most significant shift is visible on the 3-month charts, where capital is rotating into previously “beaten-down” sectors:

• IT (11%): After a long period of underperformance, the IT sector has turned around sharply. The recovery is fueled by a pivot to Generative AI (GenAI) contracts, which now reportedly make up over 70% of new deal pipelines for tier-1 firms.
• Finance & Realty (7.3% & 4.3%): These sectors are emerging from the bottom. With the RBI’s easing cycle and the recent simplification of GST slabs, housing demand and credit growth are seeing a synchronized uptick.
• Pharma & Healthcare (6.5%): Gaining momentum due to the GST exemption on health and life insurance premiums, which is expected to significantly boost inpatient volumes and insurance penetration.

The Laggards

• FMCG & Media: These sectors continue to be a drag on the index. Despite a “Rural Revival” narrative bolstered by a good 2025 monsoon, FMCG stocks (e.g., HUL, Nestle) are still adjusting to a shift in consumer behavior toward quick-commerce and private labels.

Key Drivers for the Next 3–6 Months

Conclusion

The “easy money” phase of the index rally is transitioning into a phase where alpha will be generated by identifying the outperforming stocks within these turnaround themes.

The Playbook: Focus on quality leaders in IT and Banking that show improving Net Interest Margins (NIMs), and stay overweight on Metals as long as global industrial demand remains resilient. For the discretionary theme, look at Auto Ancillaries which are benefiting from both the GST cuts and the localized manufacturing push.

Mitesh Kumar, CMT is part of the India Core Team for CMT Association, serving as the Delhi & NCR Chapter Lead. An experienced algo trader, he specializes in building systematic quantitative strategies and also coaches individuals on achieving financial independence. As an instructor with Yubha, he is currently focused on supporting the growth of the CMT community in India.

Shared content and posted charts are intended to be used for informational and educational purposes only. CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. CMT Association does not accept liability for any financial loss or damage our audience may incur.