STOCK MARKET BIG PICTURE IN AUGUST 2026

STOCK MARKET BIG PICTURE IN AUGUST 2026

Large caps came under pressure, while smaller indices outperformed in August 2026 on the back of alpha hunting. Mid-caps, small caps, and micro-caps did progressively better

Let us start with generic indices. August 2026 saw geopolitical pressure on large caps; even as smaller indices performed better. For August; Nifty 50 fell (-1.14%), Nifty Mid-Cap 100 (+2.15%), Nifty Small Cap 100 (+3.16%), and Nifty Micro Cap (5.49%). A 50:25:25 Multicap yielded just 0.66% in August 2026.

Sectoral indices showed interesting trends in August 2026. Sectoral stars for July were Capital Goods (5.4%), Telecom (4.7%), Consumer Services (3.8%), and Retail (3.6%). Key losers were Power (-7.5%), FMCG (-6.3%), and Cement (-3.4%). Undertone was mixed.

What about Strategy indices in August 2026? Strategies that showed solid performance were Alpha, Momentum, and Quality. The strategies that actually lagged in August were Low Volatility, Value, and Equal-Weight.

What about Thematic Indices in August 2026? Star themes for August in terms of returns were; Internet, Sugar & Ethanol, Defence, Digital, and SME. Themes that lagged were; Microfinance, Rural India, Railways, and infrastructure.

Broadly, two themes were prominent in August in terms of sectoral preferences. Firstly, the alpha hunt is going progressively lower down the market cap curve. Secondly, the gaining themes have been green and new-economy in nature.

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 has been a year of mixed performance with 18 out of 25 key sectors giving positive returns and 7 sectors giving negative returns. While Telecom, Metals, NBFCs, PSU Banks and Pharma were the stars; FMCG, Cement, and Insurance lagged.

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

The shorter-term theme has shifted towards sectors that are getting their supply chain right, apart from domestic themes. Over a 5-year period; IT and FMCG have lagged, while PSU banks have beaten private banks by a margin in terms of stock returns.

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 NBFCs, PSU Banks and Metals have justified the higher volatility risk in last 1 year, through commensurately higher returns.

Over the last one year, 16 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 movements. Lower the R-Squared, better for diversification. Best diversification Plays were IT, Healthcare, and FMCG. In the short-term; IT is emerging as a good portfolio diversification tool.

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 August 2026.

Data Source: NSE Indices

Here are key takeaways from the valuation parameters.

In August, the performance has shifted more towards the value sectors with low-P/E. For instance, the outperformers in the last one year; like PSU banks, metals, and telecom have been the names with relatively lower P/E ratios.

If you look at average P/E ratios with respect to last 10-year averages, Private Banks and IT are giving the maximum comfort. However, there are structural issues involved and hence below-average P/E may not be suggestive, by itself.

What about sectors that are still attractive based on dividend yield. IT with a dividend yield of 2.57% is the most undervalued based on DY. Other attractive sectors by DY are Oil & Gas 1.79%, Power 1.58% and Metals 1.28%.

As in the previous 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. While valuations are getting richer, there are still diverse pockets of value available within the healthcare space!