October 2026 Sector Review: Risk, Returns and Valuations

STOCK MARKET BIG PICTURE IN OCTOBER 2026

October sprung a surprise in the second half. While most of the indices remained under pressure, the rally in IT stocks led the Nifty into positive territory in October 2026.

Let us start with generic indices. October 2026 saw most indices under pressure, except for a positive surprise from the Nifty. For October; Nifty 50 rallied (+1.95%), Nifty Mid-Cap 100 (-3.38%), Nifty Small Cap 100 (-4.02%), and Nifty Micro Cap (-8.94%). A 50:25:25 Multicap yielded fell -1.85% in October 2026.

Sectoral indices showed interesting trends in October 2026. Sectoral stars for October were IT (18.1%), PSU Banks (+2.7%), Pharma (2.6%), and Healthcare (1.9%). Big losers were NBFCs (-8.6%), Metals (-7.2%), and Capital Goods (-7.2%). Undertone was weak.

What about Strategy indices in October 2026? Strategies that showed solid performance were Growth, Equal-Weight Large Caps, and Quality. The strategies that lagged in October were Alpha, Momentum, and Value.

What about Thematic Indices in October 2026? Star themes for October in terms of returns were; Digital, Shariah, Services, and Liquid Stocks. Themes that lagged were; Microfinance, Ethanol, Defence, Railway PSUs, and MNCs.

The gaining themes were IT and IT related themes; and to a lesser extent healthcare. PSU banks continue to snatch an advantage over private banks in terms of performance.

HOW SECTORAL INDICES FARED ON RETURNS IN LAST 1 YEAR?

The table captures the returns on 25 key sectors with ranking on 1-year returns.

Data Source: NSE Indices

There are interesting takeaways from sectoral returns analysis

The last one year saw 20 out of 25 key sectors giving negative returns and only 5 sectors giving positive returns. While Telecom, Pharma, Metals, and PSU Banks were the stars; Construction, Cement, FMCG, Insurance, and Housing Finance trailed.

If we take a longer-term 5-year view; the best performers based on CAGR returns were PSU Banks, Hospitals, Capital Goods, and Autos. On the downside; Housing Finance, IT, Cement, Insurance, and FMCG gave sub-5% CAGR returns over the 5-year period.

The top-5 sectors by one-year returns have also given double-digit CAGR returns over the last 5 years. The top 5 funds by 1-year returns averaged 15.62% over the last 1 year and an average CAGR return of 17.23% over the last 5 years.

Let us now take a look at the risk aspect of sectoral indices.

HOW SECTORAL INDICES FARED ON RISK IN LAST 1 YEAR?

Returns are one side of the coin. Risk is the other side of the coin for investors.

Data Source: NSE Indices

The above table is ranked on 1-year volatility (standard deviation of returns) starting with the most volatile sectors to the least volatile sectors.

What about volatility / return connection? Realty and IT have not justified the higher volatility in prices; but PSU Banks and Metals have justified the higher volatility risk in last 1 year. IT has just turned around in the last one month.

Over the last one year, 15 out of 25 sectors were aggressive sectors with Beta ≥ 1. Pharma and Healthcare generated best defensive risk-adjusted returns, while the rest of the defensive plays have generated below-average returns.

R-Squared shows how much sector returns are explained by Nifty. Lower the R-Squared, better it is for diversification. Best diversification Plays were IT, Healthcare, and Telecom. Telecom and healthcare have been outperformers over a 5-year period.

Let us finally turn to how valuations of various sectors stack up?

SECTORAL INDICES AND THE VALUATION PLAY IN LAST 1 YEAR

Here, we look at sectoral valuations ranked on P/E ratios as of October 2026.

Data Source: NSE Indices

Here are key takeaways from the valuation parameters.

The recent buying interest in CDMO stocks and Biosimilars has led to the entire healthcare space becoming a high P/E space. However, it has turned out to be a growth story, outperforming despite higher valuation multiples.

If you look at average P/E ratios with respect to last 10-year averages, Private Banks and IT are giving the maximum comfort, although IT has become relatively more expensive in the last 2 months. Oil & Gas and PSU banks remain the most undervalued by P/E ratio.

What about sectors that are still attractive based on dividend yield. Oil & Gas with a dividend yield of 3.41% is a value play. Other attractive sectors by dividend yield are IT 2.85%, FMCG 2.64% and PSU Banks 2.53%.

As in the last few months; it is Healthcare that is checking multiple boxes. Returns are attractive, volatility is low and low R-Squared makes it best suited to diversifying the portfolio. However, valuations in healthcare are not too cheap and it is becoming more of a momentum play. Value buying is just starting to shift to IT and Private Banks.