As India moves closer to 2026, the investment landscape is transforming. The era of blanket market momentum is fading, giving way to a more nuanced environment where success hinges on picking the right stocks and sectors. This is the core finding of a recent analysis by the global brokerage firm CLSA.
Navigating Currency Volatility and Selective Strength
The report acknowledges that investors are grappling with a market shaped by currency fluctuations and sector-specific performances rather than uniform growth. India's macroeconomic fundamentals remain robust, even as short-term headwinds test market sentiment.
On the currency front, CLSA noted that the Indian rupee crossed the 91-mark against the US dollar in December 2025. This represented a depreciation of more than 5.5% over the course of the year. However, the brokerage offered a reassuring perspective, stating this weakening has been one of the most gradual phases observed in the last 15 years, avoiding disruptive shocks.
CLSA attributed the rupee's softness primarily to reduced foreign capital inflows and speculative trading, not a breakdown in domestic economic health. Historically, such periods of weakness have reversed when assessed through real effective exchange rate trends.
Stock-Specific Conviction: Retail, Auto, and IT in the Spotlight
Avenue Supermarts (DMart) received detailed attention as a compelling long-term narrative centered on free cash flow. CLSA drew parallels with global giants like Walmart and Costco, noting that aggressive store expansion typically pressures free cash flow in initial years. DMart is expected to remain in this phase, with plans to add stores at a 15–20% annual rate and a long-term vision for 2,200 outlets.
The brokerage highlighted a favourable demand environment for DMart. It also downplayed the threat from quick commerce, projecting it will capture less than 20% of urban consumption even by FY35. To boost value, DMart is aggressively expanding its private label offerings, which are priced 40-50% lower than branded alternatives.
In the automobile sector, CLSA identified early signals of a turnaround in the commercial vehicle (CV) cycle. Improved freight demand and lower upfront costs post-GST reductions are key drivers. The firm expects Ashok Leyland to achieve a 10% volume CAGR in medium and heavy CVs over FY27–28. This recovery, coupled with operational discipline, could push its EBITDA margins to 13.5%. CLSA advised investors to focus on manufacturers like Ashok Leyland rather than lenders in this cycle.
The IT Sector: Moving Beyond the AI Hype
CLSA's discussions with IT majors like Infosys, HCLTech, Wipro, and Persistent Systems indicated that near-term client spending remains focused on cost optimization. However, a significant shift is underway. The initial hype around Artificial Intelligence (AI) is evolving into tangible business.
Tata Consultancy Services (TCS) made a notable disclosure, revealing its annualized AI services revenue has reached $1.5 billion. Its next-generation services revenue stands at a substantial $11 billion. The company has laid out a five-pillar strategy aiming to become the world's premier AI-led technology services organization.
CLSA expects Infosys to report strong order book growth, bolstered by a major $1.6 billion NHS deal spanning 15 years. While AI is creating some deflationary pressure, it is being counterbalanced by increased work volumes, leading to steady order growth.
Another company, Amber Enterprises, indicated industry-leading growth in air-conditioning and a strong medium-term outlook. It guided for 40–45% growth in its electronics segment for FY26, with margins of 8–9%, supported by organic and inorganic expansion.
The Bottom Line for Investors
CLSA's overarching message is clear: India's market journey into 2026 will be defined by selective opportunities, not broad-based rallies. The silver lining is the absence of any sudden deterioration in the country's economic fundamentals.
For investors, the path forward involves focusing on companies with clear visibility, structural advantages, and strong balance sheets. Whether it's through DMart's expansive retail footprint, TCS's deepening AI capabilities, or Ashok Leyland's leverage to a recovering CV cycle, the next phase of market returns will be built stock by stock, not index by index.
Disclaimer: The views and recommendations above are from the brokerage report and not of this publication. Investors are advised to consult certified experts before making any investment decisions.
