Indian Markets: Large-Caps Rise, IPOs Set for H2 2026 Boost

The landscape for New Fund Offers (NFOs) appears limited as most Asset Management Companies (AMCs) have largely completed their product suites, according to Chirag Setalvad, Head of Equities at HDFC Asset Management Company. This slowdown reflects a comprehensive product offering rather than concerns about the market’s current trajectory.

Valuation Shifts and Investor Interest

Large-cap segments are gaining relative attractiveness, with the Nifty 50 Index currently trading in line with its long-term average price-earnings (PE). Investor interest and ownership in large-caps have reached a multi-year low, suggesting potential for capital rotation into this segment.

Conversely, small and mid-cap (SMID) valuations are at a 20-25 percent premium to their 10-year average. This premium has significantly moderated from its peak of 50-60 percent, yet Setalvad believes a bottom-up approach can still uncover satisfactory stock-specific opportunities in SMIDs over the medium term.

Sectoral Polarization and Volatility Drivers

Market conditions indicate a clear polarization across sectors. Financials, IT, and consumer staples currently present attractive valuations, while utilities, pharma, and capital goods are more richly valued.

Continued market volatility is anticipated, driven by persistent West Asia crises, rising global inflation and yields, and higher global equity valuations. This environment is particularly favorable for active funds that employ a stock-specific investment approach, creating opportunities across both diversified and sectoral funds.

Quarterly Performance and Sector Outlook

Aggregate performance for the June 2026 quarterly results exceeded initial expectations. This positive outcome occurred despite earlier concerns regarding the full impact of the West Asia crises on input prices and potential raw material shortages.

Both the IT and banking sectors have underperformed, trading at a significant discount to their long-term average valuations. The banking sector shows promise with sharp credit growth, benign asset quality, range-bound margins, and a boost in deposits from new FCNR regulations.

The IT services sector faces a more challenging and uncertain future due to the increasing proliferation of artificial intelligence (AI). AI’s impact, including potential headcount reductions, increased pricing pressure, and disruption of existing business models, remains unclear, though it also creates new opportunities and productivity benefits.

IPO Market Poised for Uptick

The IPO market in 2026 has been subdued, raising approximately $5 billion compared to $20 billion in both 2024 and 2025. However, a meaningful uptick is expected in the second half of the year with several big-ticket IPOs. Setalvad indicated sufficient domestic and other capital is available to support this anticipated surge.