India's 2026 Market: PMI Dips, BFSI Shines, IT Grapples with AI Costs

• HSBC India Manufacturing PMI fell to a 9-month low of 55 in December, though still indicating expansion, with overall sentiment at a 3.5-year low due to market uncertainty.
• A sound equity strategy for 2026 suggests focusing on consumption revival, strong BFSI sector, and large-cap companies, moving away from a high-risk approach.
• The BFSI sector shows robust health with significantly reduced NPA levels, especially among large borrowers, driven by deleveraging and the IBC's impact.
• Indian IT companies are heavily investing in AI despite slower "Agentic AI" adoption and LLM race slowdown, facing challenges in balancing costs, investments, and profitability.
• New excise duties on cigarettes led to a 34-50% tax increase, causing a sharp fall in cigarette stocks and reintroducing policy risk for investors.

Why It Matters: 2026 market outlook is mixed: strong BFSI, cautious IT on AI, and new policy risks for specific sectors.