Market strategy: How should investors rebalance portfolios for H2CY26? Analysts favour banks, auto, metals, healthcare

The Indian stock market remained under pressure during the first half of CY2026, underperforming several global peers amid record foreign portfolio outflows, earnings concerns, and a series of geopolitical and macroeconomic headwinds. The US-Iran conflict and the subsequent spike in crude oil prices further weighed on investor sentiment.

While fears of a prolonged oil shock and escalating tensions in the Middle East have eased, analysts believe the backdrop for Indian equities has turned more favourable.

Valuations have also become more attractive. The Nifty 50 index is currently trading at a 12-month forward price-to-earnings (P/E) ratio of 18.8x, around a 10% discount to its long-period average (LPA) of 21x. Its forward price-to-book (P/B) ratio of 2.7x is about 5% below the historical average of 2.9x.

Similarly, the index’s trailing 12-month P/E of 21.6x is at a 7% discount to its historical average of 23.2x, while the trailing P/B ratio of 3x is roughly 4% below the long-term average of 3.2x.

Looking ahead to the second half of CY2026, analysts expect market volatility to persist as global geopolitical developments, interest rate expectations, and India’s macroeconomic outlook continue to shape investor sentiment.

However, experts say that the first half of the year has reinforced the importance of diversification, with different asset classes responding differently to changing market conditions. As a result, this is an opportune time for investors to review their asset allocation and ensure it remains aligned with their long-term financial goals.

Focus on disciplined portfolio rebalancing

Ajay Garg, Director and CEO of SMC Global Securities, believes H2CY26 will require disciplined portfolio management rather than aggressive positioning.

“As markets are likely to remain influenced by global interest rate expectations, corporate earnings and geopolitical developments, investors should focus on rebalancing their portfolios instead of chasing short-term market momentum,” Garg said.

He recommends maintaining exposure to fundamentally strong companies with healthy earnings visibility while using debt investments to provide stability in an evolving interest rate environment.

Gold, he added, should continue to play a role as a hedge against geopolitical and market uncertainties.

“Above all, investors should avoid making frequent portfolio changes in response to short-term volatility and remain committed to a disciplined long-term investment strategy,” Garg said.

Five sectors expected to outperform in H2CY26

Sunny Agrawal, Head of Fundamental Research at SBI Securities, believes investors should increase exposure to sectors where earnings visibility and underlying fundamentals remain strong.

1. Banking

Agrawal expects the banking sector to outperform as pressure on net interest margins (NIMs), caused by the Reserve Bank of India’s (RBI) cumulative 125-basis-point repo rate cut during CY2025, is likely to ease.

He also expects the RBI’s recent measures to attract foreign capital through FCNR deposits and other initiatives enabling banks to raise overseas funds to strengthen the sector's funding profile.

“Credit growth has consistently remained in the 15-18% range over the past few fortnights. Combined with attractive valuations, the banking sector is well-positioned to deliver healthy earnings growth in the second half of CY2026,” Agrawal said.

2. Auto and auto ancillaries

The auto and auto ancillary sectors are also expected to remain strong after the GST rate cut last September boosted demand, particularly in the two-wheeler and passenger vehicle segments.

According to Agrawal, a favourable base effect should support robust double-digit volume growth through September, although momentum may moderate thereafter due to a higher base.

Auto ancillary companies are also expected to benefit as several players continue to gain wallet share and strengthen their market positions.

3. Metals and mining

Agrawal remains positive on metals and mining, particularly ferrous metals.

Following the safeguard duty imposed in December 2025, prices of hot-rolled coils (HRC) and cold-rolled coils (CRC) have steadily risen over the past four to five months. The higher steel prices are expected to translate into stronger first-quarter earnings for ferrous metal companies.

Within non-ferrous metals, aluminium also remains attractive.

“Although aluminium prices have softened recently, the commodity remains in a structural uptrend and continues to trade above year-ago levels. Companies with significant aluminium exposure are therefore expected to perform well,” Agrawal said.

4. Consumer discretionary (Hotels)

Hotels remain Agrawal’s preferred play within the consumer discretionary space. The sector delivered healthy earnings growth in the fourth quarter, and the momentum is expected to continue through H2CY26.

The festive season between September and December, traditionally the strongest period for the hospitality industry, is expected to support higher occupancy levels, room rates and profitability.

5. Healthcare (Hospitals)

The hospital segment also remains well-positioned for sustained growth, supported by ongoing capacity expansion, improving bed utilisation and higher average revenue per occupied bed (ARPOB).

Growing demand for specialised treatments, particularly in oncology and cardiology, is expected to further drive earnings growth during the second half of the year.

Overall, Agrawal believes investors rebalancing their portfolios for H2CY26 should consider increasing exposure to these sectors, as they offer favourable earnings visibility, improving fundamentals and strong structural growth drivers.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.