Equity Monthly for February 2026

Markets continued to be under pressure with Sensex declining by 3.4%. BSE mid and small cap indices declined by 3.7% and 6.3% respectively. On the global front, the US (S&P 500 Index) was up 3.4%. Emerging Market Index continued to do well and was up 11% driven by Taiwan, Korea, Brazil and China.

Key Developments for the month were:

• Geopolitical tensions especially in the Middle East have escalated, which may impact crude price. Benign crude has helped India; any risk to that may impact overall growth. In another development, Japanese yield moved sharply by 15 bps driven by expectation of higher inflation. From equity perspective, despite the temporary rate cuts that few countries have witnessed (including India), our view is interest rates will broadly remain higher over the long term; and that will have a bearing on cost of capital for companies globally.
• In India, broader economic indicators have presented a mixed picture. Indicators such as Bank credit growth, Auto sales, Power consumption, property registration and cement production have shown improvement. Central government capex, GST collection and Exports has been weak. Global institution IMF has raised Indian GDP Estimates for FY26 from 6.6% to 7.3% primarily driven by the expectation of better growth in second half FY26. FY27 estimates are expected to revert to 6.4% in line with India’s long-term trajectory.
• Coming to sector performance, Capital goods, Energy and Healthcare were the laggards w.r.t NSE 500, during the month. Sectors such as Metals. IT, FMCG and Banks were pockets of strength.
• In line with the past trends, January witnessed FII outflows to the tune of USD 3.4bn; whereas DII continue to support the market with inflows USD 7.6bn. While IPO remains strong; the overall IPO activity has reduced compared to earlier months.

Table 1: Performance of Major Indices during the Month

Source: Bloomberg, Data as of 31^st January 2026.
Past performance may or may not be sustained in the future.

Corporate Result Season points to likely pick up in earnings.

• So far, major banks have reported decent uptick in loans growth. Median loan growth for the top 4 private banks has improved to 13%. Margin pressures are slowly abating as bulk of asset repricing is in the base. In the absence of further rate cuts, margin can improve from hereon. On asset quality; pockets of concern in the past years such as Personal loan, Microfinance, Credit cards, Small Business loans are showing improvement. We remain well positioned in the banking names.
• Companies within the IT pack pointed to improving business trends going forward. Business verticals like BFSI, Hi-Tech, and Healthcare have shown demand recovery. Going forward, we expect some of the discretionary demand may pick up in these pockets.
• Auto sectors continue to witness a strong improvement in retail demand, supported by GST cuts. The impact has been more visible in mass-market categories such as entry-level two-wheelers and passenger vehicles.

Table 2: Current Vs Historic Valuations of major indices

Source: Bloomberg; P/E: Price to Earnings; P/B: Price to Book; Data as of 31^st January 2026.
Past performance may or may not be sustained in the future.

• While the near-term economic trend is gradually recovering; valuations appear reasonable in pockets within the large cap space (Refer Table 2). Given the correction in broader markets such as small caps, valuations here have become conducive and there are good opportunities for bottom-up stock picking.
• The 125bps interest rate cuts, benign inflation, good monsoon and potential consumption boost from tax cuts and GST rationalization augurs well for the economy over the medium term. The risk reward appears reasonable for a long-term investor.

Above article is authored by Quantum.

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