Three Sectors to Watch as Markets Turn Fundamentals‑Driven: IT, NBFCs and Metals
As markets enter a more fundamentals‑driven phase, sector selection becomes increasingly critical. The next phase of wealth creation is unlikely to be led by speculative narratives or liquidity‑fueled momentum. Instead, it will be shaped by earnings visibility, balance‑sheet strength, and alignment with evolving macro conditions.
Against this backdrop, three sectors stand out as India approaches 2026: Indian IT services, Non-Banking Financial Companies (NBFCs), and metals. While distinct in nature, these sectors share a common thread—improving fundamentals at a time when market attention is shifting from storytelling to scrutiny.
From Liquidity to Discipline: A Market Regime Shift
The post‑pandemic years were characterized by abundant liquidity, near‑zero global interest rates, and an aggressive chase for narratives. Capital flowed freely, valuations expanded rapidly, and thematic investing often overshadowed balance‑sheet quality and execution discipline.
That phase is now decisively behind us. Global growth has slowed but stabilized, central banks have moved from aggressive tightening to calibrated easing, and risk capital has become selective rather than scarce. In this environment, investors are transitioning from momentum‑driven positioning to fundamentals‑based allocation.
The key question is no longer which stock might deliver the next sharp rally, but which sectors are aligned with both cyclical recovery and structural change—without demanding excessive valuations.
Indian IT Services: The Execution Phase of the AI Cycle
Global equity markets have been dominated by an AI‑led rally, largely concentrated in hardware manufacturers, semiconductor firms, and cloud infrastructure providers. India’s listed markets have remained underrepresented in this phase, leading to sharp underperformance in IT services stocks over the past year.
However, this divergence reflects a mispricing rather than irrelevance. AI value creation does not end with infrastructure. The next phase involves integration, deployment, compliance, data engineering, and workflow transformation—areas where Indian IT services firms have deep expertise.
Why IT Underperformed
Slower enterprise technology spending in the US and Europe
Delayed discretionary IT projects
Temporary diversion of budgets toward AI pilots and infrastructure
Premature fears of AI‑driven pricing disruption
As a result, the IT sector delivered muted growth despite resilient balance sheets and strong cash flows.
Why the Narrative Is Incomplete
As enterprises move from experimentation to deployment, execution complexity increases. AI integration requires governance, cybersecurity, regulatory compliance, and industry‑specific customization. These challenges favor process-driven, scalable service providers.
Currency support, strong net‑cash positions, high free‑cash‑flow conversion, and shareholder returns through dividends and buybacks provide downside protection. Mid‑cap IT firms, in particular, offer operational leverage and valuation comfort as the cycle turns.
NBFCs: Direct Beneficiaries of a Falling‑Rate Environment
If IT represents global execution, NBFCs reflect India’s domestic monetary cycle. With cumulative repo rate cuts already delivered and an easing bias in place, the operating environment is turning favorable for high‑quality lenders.
NBFCs typically see funding costs reset faster than lending yields in a declining‑rate regime, creating a window for margin expansion. Even modest improvements in net interest margins can significantly lift profitability due to operating leverage.
Macro Support Remains Strong
GDP growth remains steady
System NPAs are at multi-decade lows
Formalisation continues to expand organised credit
Lower EMIs improve affordability and demand
Credit growth in NBFCs has already outpaced banks, driven by MSME lending, vehicle finance, gold loans, and housing finance.
Where Selectivity Matters
Gold‑loan NBFCs, diversified large lenders, and housing finance companies are best positioned. Microfinance remains vulnerable due to borrower stress and requires caution. Investors should focus on secured lending, strong capital adequacy, conservative underwriting, and stable liability profiles.
In a falling‑rate environment, quality compounds faster than risk.
Metals: From Tactical Trades to Structural Exposure
Historically treated as high‑beta tactical plays, Indian metal companies now enter this cycle with stronger balance sheets, disciplined capital allocation, and robust cash flows.
Domestic infrastructure, urbanization, and manufacturing growth provide structural demand, reducing dependence on exports. Globally, underinvestment in supply, energy‑transition requirements, and geopolitical fragmentation support a longer‑term commodities upcycle.
Where Value Emerges
Aluminium benefits from cost leadership and supply constraints
Steel demand is anchored by India’s infrastructure push
Metals offer diversification amid currency volatility
Profitability today is increasingly operational rather than purely price‑driven, marking a structural shift from earlier cycles.
Conclusion: When Fundamentals Reassert Themselves
As markets approach 2026, easy narratives are giving way to hard numbers. Capital is becoming selective, and fundamentals are reclaiming center stage.
Indian IT services, NBFCs, and metals sit at the intersection of cyclical opportunity and structural strength. They offer improving earnings visibility, balance‑sheet resilience, and valuation comfort—qualities that matter most in a mature market phase.
The next phase of wealth creation will not belong to the loudest stories, but to sectors where fundamentals quietly compound.
Explore More Insights
To deepen your understanding of how credit cycles, balance‑sheet strength, and monetary policy influence long‑term wealth creation:
Explore insights from Ranjit Jha, CEO of Rurash Financials, a pioneer in research‑driven wealth advisory.
Learn how Rurash Financials empowers investors through:
AIF access
Portfolio engineering
Unlisted equity opportunities
Personalised wealth strategies
Visit the official Rurash Financials website to know more.