That said, those investors, who made thematic investments this year, pocketed better returns than those who mirrored benchmarks.
The Nifty Bank, Nifty Metal, and Auto indices, for instance, outperformed the benchmark and key broader market indices with up to 24 per cent gains.
Looking forward, analysts have picked top sectors to invest or avoid in 2026, based on their valuations:
‘Undervalued’ sectors of 2025
Analysts think financials, metals, and IT sectors are trading at ‘relatively’ better values and may offer suitable entry points at current levels. “Despite a healthier balance sheet position than in the past, valuations in the finance sector — particularly large private banks, PSU banks and NBFCs — remain near or even below their 5-10 year average multiples, suggesting further upside,” said Ravi Singh, chief research officer, Master Capital Services.
The IT index, too, has cooled from its 2021 peak and trades at 27.8x TTM P/E, slightly below its 5-year average of 29.7x and only modestly above its 10-year average of 26.3x. “The index looks ‘cheap’ relative to the growth it has to offer in a stabilising global macro,” said Ankit Soni, AVP – fundamental research, Mirae Asset ShareKhan.
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‘Overvalued’ sectors of 2025
On the flipside, analysts said some pockets are “clearly stretched” and should be avoided in 2026.
A key example, as per Ravi Singh of Master Capital Services, is the consumer discretionary and premium consumption categories. Several companies in this space, he said, are trading far over their 5–10 year historical multiples and look unattractive.
Additionally, healthcare, particularly hospital chains, appear “overvalued” following strong gains in the pack on assumptions of consistently high occupancy, rapid average revenue per occupied bed (ARPOB) gains and flawless brownfield expansions, according to analysts. The Nifty Pharma trades at 33.9x TTM P/E, above its 5-year average of 32.9x.
That apart, themes such as railways, defence, and PSU-linked infrastructure also flag near-term valuation risks.
“Despite long-term growth potential, the defence sector appears overheated. With a strong rally in 2025, the index trades at multiples higher than its last 10-year average,” Soni said. Notably, the Nifty India Defence trades at 50.6x TTM P/E, well above both its 5-year average of 40.1x and 10-year average of 36.6x.
2026 playbook: where to invest?
Looking ahead, Ravi Singh says investors may invest in energy-linked businesses such as transmission and distribution utilities, renewable equipment makers and power companies in 2026, which are entering an execution-led phase with regulated returns, long-term power purchase agreements (PPAs) and more predictable cash flows. Financials, he said, remain a “core preference” as interest rates stabilise and credit costs normalise.
“From a medium-term lens, engineering goods, auto ancillaries, and specialty industrials are attractive beneficiaries of supply-chain diversification and export opportunities. As portfolio ballast, we also recommend consumer staples and select utilities,” he said.
Disclaimer: View and outlook shared on the stock/sectors belong to the respective analysts and are not endorsed by Business Standard. Readers discretion is advised.