SIPs to stay strong despite muted return: Nilesh Shah

As investors prepare for the financial landscape of 2026, understanding the nuances of market performance and investment strategies is more crucial then ever. The past year challenged many assumptions, with customary asset classes like equities and fixed income underperforming relative to expectations. Meanwhile, alternative assets such as precious metals surprised many by delivering strong returns. For those seeking to navigate these complexities, adopting a well-rounded, diversified approach with realistic expectations will be essential to achieving lasting growth.

Market Performance Review: Lessons from 2025

Nilesh Shah, Managing Director of Kotak Asset Management Company, recently highlighted on ET Now’s The Money Show that 2025 was a year that defied many market predictions. While equities and fixed income instruments fell short of anticipated returns,precious metals emerged as the standout performers,defying conventional wisdom.This unexpected trend underscores the inherent difficulty in forecasting market movements and the importance of flexibility in investment planning.

Most forecasts made at the close of 2024 failed to anticipate the resilience of precious metals, which benefited from factors such as geopolitical tensions and central bank policies. This unpredictability serves as a reminder that investors must remain vigilant and adaptable.

Systematic Investment Plans: Enduring Strength Amid Market Volatility

Despite the muted equity returns in 2025, SIPs (Systematic Investment Plans) are expected to maintain their appeal in 2026. According to Shah, the key lies in investors adjusting their expectations to a more realistic level.SIPs continue to offer returns that outpace inflation over the long term, making them a valuable tool for wealth creation.

the growing financialisation of household savings, combined with increased investor sophistication and digital access, has fortified the SIP ecosystem. Awareness campaigns and technological advancements have also played a notable role in encouraging disciplined investing habits among retail investors.

Corporate earnings and Economic Drivers: Catalysts for Market Growth

Corporate earnings growth has been modest, with single-digit increases over the past six quarters. However, several policy initiatives are poised to stimulate consumption and earnings momentum in the near future. Measures such as income tax relief, rationalisation of GST, reduced EMIs due to interest rate cuts, and anticipated pay commission benefits are expected to collectively boost disposable incomes.

Shah emphasizes that a consumption-driven economy can trigger a virtuous cycle, where increased spending fuels investment, job creation, and further consumption. This dynamic could propel earnings growth into double digits over the next 18 months, providing a supportive backdrop for equity markets.

Investment Outlook: Balancing Optimism with Prudence

While the outlook for equities remains positive, investors should temper their expectations compared to the robust returns seen over the past five years. The broad market delivered approximately 16% annual returns, with small- and mid-cap stocks exceeding 20%. Such performance levels are unlikely to be replicated in the coming half-decade.

For fixed income, strategies focusing on carry and credit alternatives are expected to continue offering attractive risk-adjusted returns. Regarding precious metals like gold and silver, Shah advises caution, noting that central bank buying has been a significant price driver. Any reversal in this trend could signal a need for early exit. Additionally, technological innovations may influence precious metal valuations, warranting close monitoring.

In the ongoing debate between active and passive fund management, Shah asserts that active fund managers in India still have opportunities to outperform benchmarks due to market inefficiencies and stock selection possibilities, unlike many global markets where passive investing dominates.

Key Sectors to Monitor in 2026

Shah identifies several sectors with promising prospects for 2026. Consumer discretionary, cement, and banking and financial services are expected to be focal points. although the banking sector may face short-term margin pressures, favorable valuations and credit growth trends could support its performance over time. The chemicals sector also presents long-term potential despite anticipated volatility in the near term.

Ultimately,Shah encapsulates his investment philosophy and life approach with a simple resolution for 2026: “Every day,try to be a better version of myself than yesterday.” This mindset reflects the importance of continuous learning and adaptation in both markets and personal growth.

Vital Facts: Key Points to Remember

• Precious metals were the top-performing asset class in 2025, outperforming equities and fixed income.
• SIPs remain a resilient investment vehicle, delivering real returns above inflation despite market volatility.
• Corporate earnings growth has been single-digit over the last six quarters but is expected to accelerate due to policy measures.
• Key policy drivers include income tax relief,GST rationalisation,lower EMIs from rate cuts,and upcoming pay commission benefits.
• Equity market returns over the next five years are projected to be moderate compared to the 16-20% annual returns seen previously.
• Fixed income strategies focusing on carry and credit alternatives continue to offer attractive risk-adjusted returns.
• Central bank purchases have significantly influenced gold and silver prices; any change in this trend could impact valuations.
• Active fund management in India still holds potential for outperformance due to market inefficiencies.
• Consumer discretionary, cement, banking, financial services, and chemicals are sectors to watch in 2026.
• Nilesh Shah emphasizes realistic expectations and continuous improvement as keys to triumphant investing.

Frequently Asked Questions

• Q: Why did precious metals outperform in 2025?A: Precious metals benefited from geopolitical uncertainties and central bank buying, which drove prices higher despite weak equity and fixed income returns.
• Q: Are SIPs still a good investment option for 2026?A: Yes,SIPs continue to offer inflation-beating returns over the long term,especially if investors maintain realistic expectations about short-term market fluctuations.
• Q: What factors could boost corporate earnings in the near future?A: Income tax cuts, GST rationalisation, lower EMIs due to interest rate reductions, and pay commission benefits are expected to enhance consumer spending and corporate profits.
• Q: Should investors prefer active or passive funds in India?A: Active funds still have an edge in India due to market inefficiencies and stock selection opportunities, although passive investing remains relevant.
• Q: Which sectors are recommended for investment focus in 2026?A: Consumer discretionary, cement, banking and financial services, and chemicals are sectors with promising growth potential.