January 2026 – How sectors fared on returns, risk, and valuations

5 Feb 2026 , 06:28 PM

Summary

The month of January 2026 saw negative returns on all the generic indices. However, if you consider a 5-year time frame, the picture looks a lot more encouraging. However, even on one-month returns, there are positive pockets like metals, PSU banks and IT. The trends have not changed too much compared to the previous month.

The average P/E of the 16 sectors is down from 30.5X to around 27.5X in the last one month, which clearly points to two factors. Firstly, the correction in the market has made the relative valuations of various sectors relatively attractive. In addition, the quarterly results of companies in oil and IT has been good, which has made valuations attractive!

 

BIG PICTURE OF STOCK MARKETS IN JANUARY 2026

January 2026 turned out to be a month of clear contrasts for Indian equity markets, with pressure on broader indices, sharp sectoral divergence, and selective strategy outperformance.

Generic indices reflected a risk off sentiment, especially across smaller stocks. The Nifty 50 ended the month with losses of 3.0 percent. The correction was sharper as market capitalisation reduced, with the Mid Cap Select declining 3.4 percent, the Nifty Small Cap 100 falling 4.7 percent, and the Nifty Microcap 250 emerging as the worst performer with a 5.7 percent decline. This highlighted heightened investor caution towards high beta segments.

On the sectoral front, performance remained uneven. Cyclical and global facing sectors outperformed, supported by favourable news flows. Metals gained 5.9 percent, PSU Banks rose 5.8 percent, and IT delivered modest gains of 0.9 percent. In contrast, India demand driven sectors remained under pressure. FMCG declined 7.7 percent, Consumer Durables fell 6.4 percent, while Auto and Healthcare both corrected by 5.1 percent.

Looking at strategy indices, investors continued to favour defensiveness and cash flow visibility. Value and Dividend Opportunities strategies outperformed during the month. Meanwhile, styles such as Smallcap Quality, Growth, and Equal Weight lagged amid broader market volatility.

Overall, January 2026 highlighted a market grappling with uncertainty, where selective global and value driven themes found favour, while domestic demand oriented sectors and smaller caps faced sustained pressure.

 

HOW SECTORAL INDICES FARED ON RETURNS IN LAST 1 YEAR?

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

Sectoral  Index	1-Year  Returns	3-Year Returns	5-Year Returns
Nifty PSU Bank	43.80	32.01	39.15
Nifty Metal	41.68	23.00	32.71
Nifty Non-Banks	23.68	25.12	18.12
Nifty Bank	21.17	14.56	15.14
Nifty Financial Services	18.85	15.86	14.36
Nifty Auto	18.06	27.18	23.36
Nifty Private Bank	17.74	12.04	12.01
Nifty Oil & Gas	12.57	16.80	18.68
Nifty Pharma	1.98	21.57	13.11
Nifty Chemicals	1.52	8.05	17.03
Nifty Healthcare Index	1.34	21.79	14.92
Nifty FMCG	-7.87	6.66	11.20
Nifty Consumer Durables	-8.18	12.97	11.75
Nifty IT	-8.74	10.91	11.35
Nifty Media	-11.69	-9.47	-2.79
Nifty Realty	-14.73	24.32	21.08

Data Source: NSE Indices

There are interesting takeaways from sectoral returns analysis

• The last one year has been a year of mixed performance with only 11 out of 16 key sectors giving positive returns and the remaining 5 giving negative returns. However, returns on 3 sectors (Pharma, Chemicals and Healthcare) are only marginally positive.
• However, we consider the 3-year or 5-year perspective, then all sectors, barring the media sector, have given positive returns. Media sector underperformance has been overtly influenced by Zee.
• Sectors pertaining to financial services still dominate the returns story in 5 out of the 7 return leaders in the last 1 year. PSU banks, Insurance Companies, and NBFCs have outperformed private banks.
  
• Among the leaders on 1-year returns; financials and autos have benefited from the India consumption story. In case of metals, it was more about metal prices being influenced by a likely recovery in China and a case of global demand exceeding supply.
• There have also been cases of stiff valuations unwinding rapidly. Realty and Consumer Durables are a case in point. IT and Pharma have witnessed pressure due to vulnerability to the US markets; although sentiments should change with the Indo-US trade deal.

Having seen the returns, let us now take the risk perspective of various 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.

Sectoral Index	1-Year Volatility	1-Year Beta	1-Year Correlation	1-Year  R2
Nifty Realty	25.68	1.56	0.69	0.48
Nifty Metal	22.90	1.43	0.71	0.51
Nifty Media	21.43	0.89	0.47	0.22
Nifty IT	20.57	1.20	0.67	0.45
Nifty PSU Bank	20.53	0.99	0.55	0.30
Nifty Non-Banks	18.17	1.29	0.81	0.65
Nifty Auto	17.14	1.13	0.75	0.56
Nifty Consumer Durables	16.88	0.95	0.64	0.41
Nifty Oil & Gas	16.76	1.11	0.76	0.57
Nifty Chemicals	15.53	0.91	0.67	0.45
Nifty Pharma	15.37	0.83	0.61	0.38
Nifty Healthcare Index	14.71	0.86	0.67	0.44
Nifty FMCG	12.82	0.59	0.52	0.27
Nifty Financial Services	12.75	0.99	0.89	0.79
Nifty Private Bank	12.57	0.94	0.85	0.72
Nifty Bank	11.74	0.90	0.88	0.77

Data Source: NSE Indices

Looking at the table above, it is clear that higher volatility does not always mean poor performance. In fact, some high-volatility sectors such as Metals, PSU Banks, and Autos have delivered strong returns over the last one year. In these cases, investors were rewarded for taking higher risk.

However, high volatility has not worked in favour of all sectors. Realty and Consumer Durables experienced sharp price swings along with negative returns during the year. Here, volatility was largely the result of selling pressure, as market participants exited these sectoral themes.

From a risk perspective, only 6 out of the 16 sectors had a Beta greater than 1 over the last year, meaning they moved more than the broader market and can be considered aggressive. The remaining 10 sectors had a Beta below 1, making them relatively defensive.

R-Squared helps understand how closely a sector moves with the Nifty. A lower R-Squared indicates better diversification benefits. Private Banks and Financial Services have a high R-Squared, which is expected given their heavy weight in the index. In contrast, PSU Banks and Metals show much lower R-Squared. This means that adding these sectors in 2025 could have not only improved returns but also reduced overall portfolio risk.

Sectors such as FMCG, IT, and Consumer Durables also show low R-Squared and can help diversify a portfolio. However, despite this benefit, FMCG and Consumer Durables underperformed in terms of returns during 2025, limiting their attractiveness from a return standpoint.

Let us finally turn to the valuations of various sectors and how they 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 January 2026.

Sectoral Index	Price/Earnings (P/E Ratio)	Price / Book (P/BV)	Dividend Yield
Nifty Consumer Durables	57.22	10.77	0.43
Nifty FMCG	37.40	9.24	2.20
Nifty Chemicals	37.32	4.10	0.63
Nifty Healthcare Index	35.99	5.21	0.60
Nifty Realty	35.68	3.79	0.38
Nifty Pharma	33.10	4.73	0.70
Nifty Media	29.69	1.46	1.40
Nifty Auto	28.91	4.59	1.18
Nifty IT	27.03	7.06	2.80
Nifty Non-Banks	23.66	4.36	0.81
Nifty Metal	20.63	3.08	1.55
Nifty Private Bank	20.03	2.25	0.55
Nifty Financial Services	17.63	2.88	0.85
Nifty Bank	16.22	2.13	0.98
Nifty Oil & Gas	10.51	1.62	2.73
Nifty PSU Bank	9.11	1.47	2.13

Here are key takeaways from the valuation parameters. 

From a valuation point of view, PSU banks still look reasonably priced. Stocks are trading at a P/E of just 9.11 times earnings, even after a strong rally over the last year. Oil & Gas is another sector that appears inexpensive, with a P/E of 11.33 times.

Consumer Durables and Realty are tougher calls for investors. Returns from these sectors have been weak, they have not added much diversification, and their valuations remain quite expensive. This combination makes them less attractive at current levels.

Across all 16 sectors, the average P/E stands at 27.5 times, suggesting that stock prices have risen faster than earnings in many areas.

In terms of income, four sectors offer dividend yields above 2% – FMCG, IT, Oil & Gas, and PSU Banks. While dividend yields in Metals have come down after the sharp rally, IT and Oil & Gas have become more appealing on the dividend front, supported by improved quarterly performance.

To sum it up, PSU banks and metals have been the standout sectors of 2025. They have delivered strong returns, done so with relatively controlled volatility, and also helped improve portfolio diversification.