Why Active Investing Could Outperform Passive Strategies in 2026
Active investing is poised to surpass passive strategies in 2026, especially as market dispersion becomes more pronounced. Sunil Sharma, Chief Investment Strategist at Ambit Global Private Client, highlights that selective market conditions in the upcoming year may favor stock picking over index-based approaches.
Key Insights on Active Investing in 2026
– Structural Advantages: Investors may undervalue the benefits stemming from a high real growth and low inflation environment, reminiscent of long economic expansions in the U.S. during the 1990s and 2010s.
– Low inflation has historically boosted purchasing power.
– It has enabled consumer confidence and better business planning.
– Central Bank Actions: The Federal Reserve is shifting from quantitative tightening (QT) to monetary liquidity injections of USD 40 billion a month, alongside a rate cut cycle. This shift mirrors trends seen globally:
– Japan is injecting USD 135 billion in stimulus.
– Germany has announced a EUR 500 billion stimulus.
– More than 90% of central banks worldwide are in an accommodative mode.
Market Conditions Leading Into 2026
– Investor Sentiment: A year ago, optimism shaped market expectations regarding a pro-business U.S. presidency. However, 2025 has proven tumultuous, fraught with uncertainty and trade shifts.
– Indian Market Recovery: After a challenging October 2024, decisive government actions in India—such as GST reductions and tax cuts—have catalyzed economic recovery. The Reserve Bank of India (RBI) has supported this trend with rate cuts and liquidity injections, resulting in positive consumer spending and rising incomes since Diwali.
The Resilience of Indian Equities
– Economic Stability: India has demonstrated resilience against significant foreign institutional selling, indicating a potentially favorable environment as we enter 2026.
– Despite the noise, the Nifty index is set to show around 9-10% upside, marking its 10th consecutive year of positive returns—an extraordinary feat in long-term investing.
– Midcaps vs. Smallcaps: Midcaps present strong earnings growth with reduced volatility compared to smallcaps, and they are expected to rebound as market conditions improve.
Sectoral Focus and Investment Strategies for 2026
– Thematic Investing: The future favors thematic strategies over passive index funds. Key sectors to watch include:
– Financial Services
– Consumption (Especially leisure and credit)
– Autos and Auto Components
– Commodities
– IT and AI-related firms
– Precious Metals: The continued advocacy for gold and silver investments is emphasized, particularly given their historical performance during inflationary periods.
Portfolio Allocation Recommendations
For an investor starting a new portfolio with an outlay of Rs 10 lakh, our recommended allocation is as follows:
– Gold: 12.5%
– Silver: 4-5%
– Equities: 72% (67.5% large-cap, 22.5% mid-cap, and 10% small-cap)
– Debt Instruments: 11%, with a focus on credit and InvITs.
Risks to Consider
– Inflation and Global Markets: Attention is needed regarding inflationary pressures and high valuations in U.S. tech stocks which could affect global markets.
– Credit Risks: Potential defaults in the U.S. and uncertainties around AI spending could pose risks in 2026.
Conclusion
Despite a backdrop of global economic uncertainties, Indian equities—particularly those within a thoughtfully selected active investing portfolio—remain resilient and poised for growth. As we enter 2026, the benefits of active investing strategies that prioritize stock selection and sectoral analysis are likely to yield better returns than their passive counterparts. Investors should remain vigilant but confident as they align their strategies with long-term wealth creation goals.