CLSA Dumps Reliance, Bets on DMart for 2026 India Growth

CLSA has unveiled its India strategy for 2026, signaling a significant pivot that sees Avenue Supermarts (DMart) and Eternal entering the firm's focus portfolio, replacing Reliance Industries and Nestle. The brokerage now prioritizes structural "coiled springs" and consolidated stocks poised for the next growth phase, moving away from broad momentum plays. This strategic shift aims to capture long-term growth drivers with greater conviction.

CLSA Pivots India Strategy: DMart In, Reliance Out

Consumption Focus Shifts to Affluent Cohorts

The firm's consumption thesis for 2026 centers on demographic segmentation rather than broad recovery. CLSA targets urban and emerging affluent cohorts, expecting them to benefit from income tax changes, lower interest rates, and premiumization trends. DMart and Eternal are identified as key beneficiaries, offering improved risk-reward and leveraged exposure to this specific growth segment. Rural demand is seen as stabilizing but not a primary driver, with a preference for organized retail and discretionary spending.

Banks Poised to Lead Earnings Growth

CLSA expects banks to be the largest contributors to Nifty profit growth over FY26-FY28, reversing a recent slowdown. Key drivers cited include improving system credit growth, gradual margin stabilization, and easing stress in unsecured lending. The report favors banks with scale, funding stability, and clear earnings visibility, particularly as global interest rates may constrain valuation expansion. Rate-sensitive sectors like real estate are also expected to benefit from policy easing, though selectivity remains crucial.

Uneven Recovery Expected for IT Services

After a challenging 2025 characterized by revenue deflation and earnings downgrades, CLSA anticipates a more supportive environment for Indian IT services in 2026. This outlook is underpinned by an improving U.S. macro backdrop, stabilizing discretionary tech spends, and easing valuation pressures. However, the brokerage cautions that the recovery is likely to be uneven. Stock-specific execution and margin delivery will determine outcomes, rather than a broad sector re-rating.

Capex Cycle Fuels Industrials and Cement

India's capital expenditure cycle is projected to extend into 2026, supported by government spending, private investment, and strong order books. CLSA notes easing competitive intensity in the cement sector following consolidation, alongside GST changes that allow for price increases to offset costs. The sector is shifting focus from volume growth to margin expansion, favoring large players with cost leadership and strong balance sheets.

Energy, Autos Face Transition and Upcycle

Energy and power utilities are positioned as transition plays for 2026, driven by large-scale renewable capacity additions and visible regulated returns. Upstream energy earnings are expected to be supported by production ramp-ups rather than commodity price assumptions. The auto sector could see FY27 as a turning point, with 2026 acting as a transition year. Tax relief, rate cuts, and replacement demand are structural tailwinds, particularly for passenger and commercial vehicles.

Office Real Estate Offers Stronger Visibility

While housing volumes softened in 2025, price resilience in the luxury segment limited downside. For 2026, CLSA anticipates lower rates will support mid-income housing demand. However, the report identifies stronger earnings visibility within office real estate. Leasing activity, driven by global capability centers and IT services, continues to support Grade-A office demand, making large developers and listed REITs more defensible plays.

Selective Outperformance Expected in 2026

CLSA's 2026 roadmap suggests the Indian market is entering a phase of "selective outperformance." While index-level gains may be capped, the firm's "Focus List" of 18 stocks highlights a preference for leaders with strong balance sheets and structural advantages. For Indian retail investors, 2026 appears to be a year where buying established leaders at corrected valuations might finally prove rewarding.