According to Motilal Oswal Private Wealth, India’s relative valuation standing is strengthening after a consolidation-led 2025, supported by improving valuations, early signs of earnings recovery, domestic policy tailwinds, and conclusion of trade deal. Looking beyond the short-term noise, the Budget strengthens the core drivers of equity returns. Manufacturing incentives, boost for services, logistics improvement, and asset monetisation should improve the conditions for sustained profit growth over the long term.

For 2026, Motilal Oswal Private Wealth recommends a balanced investment approach – positioning large caps/hybrids as the core portfolio allocation, complemented by staggered and selective exposure to mid and small caps – anchored in improving fundamentals and macro conditions across India’s equity markets.

Reflecting this approach, Motilal Oswal Private Wealth’s Alpha Strategist – January 2026 report, titled ‘’The Daedalus Way’, focuses on resisting extremes and maintaining balance in investing. It cautions against narrative-driven euphoria and macro-induced pessimism alike. It underscores the importance of disciplined portfolio construction for sustainable wealth creation, driven by valuation-led asset allocation and execution, rather than short-term narratives or market noise.

Ashish Shanker, MD and CEO, Motilal Oswal Private Wealth, said, “The shift from consolidation and global uncertainty in 2025 to a more balanced, execution-driven phase in 2026 marks an important inflection point for Indian markets. While global factors such as moderating AI momentum, geopolitical tensions and trade realignments will remain relevant, India enters 2026 on stronger footing with improving valuations, better earnings visibility and supportive policy tailwinds. In this environment, we favour stability through large caps and hybrid allocations, alongside selective accumulation in mid and small caps, especially in the first quarter. A balanced, disciplined portfolio approach with a long-term, execution-led focus remains key for investors.”

Sandipan Roy, Director, Chief Investment Officer, Motilal Oswal Private Wealth, said, “After two strong performance years, last year saw India’s equity market consolidate, with returns diverging across market capitalisations. While large caps delivered modest returns, mid caps remained volatile and small caps witnessed corrections. Globally, we have observed markets moving into a phase of normalisation after an extended period of optimism, alongside rising geopolitical risks and moderating AI-led capex momentum. Throughout this period, while tariff-related uncertainties and geopolitical tensions resurfaced, emerging markets showed relative strength, led by China and South Korea. As India heads into 2026, we see key headwinds easing – relative valuations have improved, earnings recovery is gaining traction, AI exuberance is cooling and currency pressures have stabilised. At the same time, domestic policy tailwinds, including interest rate cuts, tax relief to boost consumption, GST slab rationalisation and sustained RBI liquidity support, are expected to translate more meaningfully into growth and earnings. Confidence seems to be coming back in the market after the trade deal with US and signing of EU FTA.”

Motilal Oswal Private Wealth believes that investors should stay true to their Investment Charter, remain neutral on strategic asset allocation, and stay patient through short-term volatility, while being driven by long-term investment objectives. Further to this, Motilal Oswal Private Wealth outlines its recommended strategies across equity, fixed-income, commodities, and real estate:

Equity Outlook:

After a consolidation-led year for Indian equities, several headwinds are easing in 2026. With fiscal and monetary measures driving future growth and earnings, the equity outlook remains cautiously constructive.

A few announcements in the Union Budget 26-27 may cause near-term volatility, such as high transaction costs and no additional consumption or tax stimulus for demand boost. That being said, the Budget strengthens the core drivers of equity returns through manufacturing incentives, boost for services, capex layout, logistics improvement and asset monetisation.

While the large caps are entering the year strong, supported by reasonable valuations and better earnings visibility, the mid and small caps are also presenting good entry point. Budget announcements & trade deals are likely to have a positive impact on the sectors mainly represented in the mid and small cap segment. So, the portfolio focused on such sectors/stocks in mid & small cap space are likely to benefit from the same.

As valuations and fundamentals improve selectively, 2026 is likely to reward execution and bottom-up stock selection rather than a broad-based, index-led rebound in the segment. Recommend investors to maintain a neutral view on equities.

Portfolio Strategy:

Indicative allocation – 50% to large caps and hybrids, 40% to mid and small caps, and 10% to global markets.

For stability and steady compounding, a balanced approach is recommended. Large caps/hybrids to be a core allocation in portfolios. Complement it with staggered investing over the next 2-3 months in mid and small caps. Prefer index-led or hybrid strategies for large caps and active, focused strategies for mid and small caps.

Use lump-sum allocations in hybrid funds at current levels; adopt a staggered SIP/STP approach for pure equity strategies over the next 2-3 months.

Also Read: Expect a Positive Chain Reaction Says MOFSL

Fixed Income Outlook:

Most uncertainties appear to be behind us or largely priced in India’s fixed income market. With benign inflation, expected downward projections, and a likely softening by the US Fed, the RBI’s neutral stance is expected to remain data-dependent with room for further rate cuts during CY26.

While the Budget maintains medium-term growth credibility and fiscal discipline, near-term bond market dynamics remain supply-heavy, warranting caution on duration in near term. Beyond rate action, RBI is actively injecting liquidity into the system through OMO purchases, USD/INR swaps, and CRR cuts. RBI OMO intensity will need to increase materially for yields to stabilize.

Tactical opportunities in duration may arise over this quarter. Elevated term premium (~140 bps) offers scope for curve steepness coming down, led by softening long-term yields, making 10–15Y G-Secs attractive.

Hence the core allocation in the fixed income portfolio should be accrual-based strategies.

Portfolio Strategy:

Allocate 45-55% of the fixed income portfolio to performing credit, private credit strategies, selective infrastructure investment trusts (InvITs), real estate investment trusts (REITs), and non-convertible debentures (NCDs) for a minimum period of 3-5 years. InvITs may see some capital appreciation due to softening rates.
For shorter holding periods, allocate in relatively liquid fixed income alternative solutions like Arbitrage Funds, Hybrid SIF Funds, and Conservative Equity Savings funds.
Consider tactical allocation to long-duration G-Secs (10 /15 year) at yield levels of ~6.8-6.9%/7.1-7.2%), for investors comfortable with duration risk, offering scope for capital appreciation and steady coupon income.

Commodities (Gold / Silver) Outlook:

Precious metals delivered exceptional returns, with gold and silver outperforming most assets classes over the past year. Gold’s rally has been largely structural and policy-driven, and we continue to view gold as a strategic portfolio asset amid ongoing fiscal imbalances, currency debasement, and an uncertain monetary policy outlook. Silver’s sharp rally has been driven by structural supply constraints amid rising industrial demand from solar, EVs, and technology, though its higher volatility may warrant a more measured approach in 2026.

Portfolio Strategy:

Gold: Maintain a neutral asset allocation for portfolio stability, accumulate gradually during market dips for moderate returns over a medium term.
Silver: Retain exposure to silver in portfolios; consider partial profit-booking for large exposures, and staggered accumulation on corrections for those with no-to-low exposure.

Real Estate Outlook:

The Indian real estate market has seen strong growth and sustained capital inflows in recent years. Commercial real estate remains the key driver largely led by the expansion of GCCs. This market is expected to remain healthy in 2026 as well. But direct commercial real estate largely remains an institutional play due to large capital requirement and individual exposure should be taken through fund route.

In our view, we are in the mid phase of the real estate cycle. Over the previous 3-4 years post covid, prices have risen sharply. Now, we expect that volume should lead this phase of the cycle while price rise may be modest. Therefore, residential real estate is likely to deliver single-digit returns in 2026 amid low rental yield of 2-3%. Future returns will depend more on micro-market selection, developer quality, and execution, rather than broad-based price appreciation.

Portfolio Strategy:

REITs offer a more efficient and diversified way to access real estate-linked cash flows – be it commercial, warehouse or data centre. These vehicles provide exposure to income-generating assets with professional management and are supported by SEBI’s framework. Amidst the volatile market outlook, a 5-10% allocation to REITs can help improve portfolio stability and enhance income visibility.