Why Real Estate Could Be a Smart Contra Bet for 2026

Avinash Agarwal, Senior Vice President & Head – Equity at Bandhan Life, believes the real estate sector can be a good contra bet for 2026. According to Agarwal, 2025 saw a significant correction in this sector, bringing valuations to a more reasonable level. Additionally, rate cuts this year are expected to boost demand, particularly in the value segment.

Agarwal is optimistic about 2026 for the mid and small-cap segment. He expects earnings growth to improve, and the full benefits of rate cuts, GST reforms, and other government announcements to positively impact the economy.

When asked about his outlook on the capital markets for 2026, Agarwal expressed a reasonably positive stance. He noted that the financialization of the economy has gained prominence in recent years and believes there is still significant growth potential. Most businesses in this sector are capital-light and generate good returns on equity (ROEs) for investors.

Agarwal anticipates that 2026 will be a better year for equity markets compared to 2025, which saw relatively muted returns. While the Nifty has provided around 10% returns, some segments of mid- and small-caps have experienced meaningful corrections. He is particularly bullish on the mid-cap segment, citing historical performance and attractive valuations based on the Price/Earnings-to-Growth (PEG) ratio.

In terms of sector preferences, Agarwal leans towards domestic economy-focused sectors over export-oriented ones. He believes the domestic economy will be more resilient in the near future. The global economy faces challenges such as conflicts, slower growth, currency issues, and concerns over AI investments. In contrast, the Indian domestic economy is growing steadily, supported by favorable demographics, government reforms, lower interest rates, and healthy bank and company balance sheets. This makes mid-caps a better proxy for India's growth story.

Regarding the IT services sector, Agarwal acknowledges the challenges it has faced, particularly with the rise of AI. However, he believes Indian IT companies have a history of adapting to technological changes and will continue to grow. While some challenges are already reflected in valuations, Agarwal has a neutral view on the sector for 2026.

On the possibility of an India-US trade deal, Agarwal notes the complexities involved in such negotiations. However, he believes a deal would be positive, especially for labor-intensive sectors like gems and jewelry and textiles, which are heavily reliant on US exports. A trade deal could have a fundamental positive impact on businesses and the economy.

For his contrarian bet for 2026, Agarwal points to the real estate sector. The industry has seen a revival post-COVID, with both price and volume recovery. Although price increases have slowed, volume growth remains strong. The sector has undergone significant consolidation over the past decade due to RERA and the previous down-cycle, and the surviving players are well-positioned for success. The recent correction in the sector has brought valuations to more reasonable levels, and rate cuts are expected to further boost demand in the value segment.

Disclaimer: The views and investment tips expressed by Avinash Agarwal are his own and not those of Moneycontrol.com. Users are advised to consult certified experts before making any investment decisions.