Sector Rotation and Earnings Cycles | Quick ₹eads

by Karnivesh | 12 February 2026

India’s stock market is not a straight line it is a living, breathing organism. Money does not sit still here. It flows. It rotates. It searches for momentum the way monsoon winds search for pressure changes. In one season, banks roar. In another, commodities glitter. Then technology wakes up. Then defensives quietly gather strength.

The year 2025 into early 2026 was a textbook example of this rotation a dance between optimism, policy, earnings, and global cues.

The Banking Boom: Credit, Confidence, and Clean Balance Sheets

Walk into a busy SBI branch in Mumbai in mid-2025. Home loan desks are crowded. MSME borrowers are back. Corporate credit lines are reopening. The tone feels different from the cautious post-pandemic years.

Public sector banks once weighed down by NPAs suddenly look transformed. Cleaner books, lower provisioning, and stronger capital ratios give them breathing room. When the RBI delivers cumulative repo rate cuts of 125 basis points, the transmission begins. Loan growth accelerates to 15–16%. Net Interest Margins remain steady.

By December 2025, the Nifty Public Sector Bank Index has surged nearly 28% year-to-date. Quarterly earnings show profit growth north of 20%. Investors, who once treated PSU banks with skepticism, now chase them as turnaround plays.

Private banks are not far behind. HDFC Bank, ICICI Bank steady compounders ride the credit upcycle, pushing the broader Bank Index up more than 16% YTD.

But markets are forward-looking. By Q4, valuations start to stretch. Analysts begin whispering: “Is peak credit growth behind us?” Funds slowly start trimming overweight positions. The first signs of rotation appear.

Metals: Riding the Global Commodity Wave

Travel east to a steel plant in Jharkhand. Blast furnaces glow against the night sky. Infrastructure orders pile up. Government capex worth lakhs of crores begins translating into actual demand for steel, copper, and aluminum.

The Nifty Metal Index surges over 21% in 2025. Copper and nickel prices firm up globally. Anti-dumping duties cushion domestic producers from cheap imports. Tata Steel and JSW Steel report strong margins in Q3.

For months, metals hold relative strength of nearly 40% classic cyclical leadership. Commodity stocks thrive when global liquidity is ample and domestic infrastructure spending is strong.

But commodities are always tied to global pulses. As China stimulus begins to fade in early 2026 and global demand signals soften, volatility creeps in. Traders who rode the upcycle start booking profits. Rotation quietly shifts capital elsewhere.

Auto: Consumption Revs Up

Now picture a Maruti Suzuki showroom in Delhi. Weekend footfall is back. SUVs dominate the display floor. Financing schemes are attractive. Rural sentiment improves after a good monsoon.

Policy tailwinds help GST tweaks, EV incentives under PM E-Drive, replacement demand from older vehicles. The Nifty Auto Index climbs over 21% in 2025, supported by strong rural recovery and urban aspiration.

Mahindra & Mahindra benefits from SUV demand. Two-wheeler companies see rural traction. EV manufacturers begin gaining market share in urban clusters.

Auto is always tied to both credit and confidence. When banks lend freely and households feel stable, cars sell. But if interest rates turn or fuel prices spike, sentiment can reverse quickly. By early 2026, investors begin weighing whether the cycle is nearing maturity.

IT: The AI Awakening

In Bengaluru’s tech corridors, something subtle but powerful begins to shift. IT stocks, which had lagged during global slowdown fears, suddenly regain attention.

Inside TCS and Infosys campuses, teams pivot aggressively toward Generative AI. Deal pipelines increasingly mention automation, AI integration, cost optimization. Nearly 70% of Tier-1 deal discussions reference AI-driven transformation.

Despite margin pressures, Q3 FY26 revenues show resilience. Sector earnings grow modestly. The Nifty IT index begins posting double-digit gains over a three-month stretch into early 2026.

Investors who rotated out of cyclicals now rotate into IT betting that US tech spending is bottoming and AI budgets will remain sticky.

IT’s comeback reflects a broader pattern: when global uncertainty rises, capital shifts toward export-oriented, high-quality franchises.

Pharma: The Quiet Stabiliser

While banks and metals swing with economic cycles, pharma moves differently.

Step into a Hyderabad formulation plant. Production lines hum steadily. Orders from US generics markets remain stable. PLI schemes support domestic manufacturing. Insurance penetration improves as policy incentives expand healthcare access.

Healthcare profits rise strongly in Q3 FY26. Companies like Sun Pharma and Dr. Reddy’s benefit from biosimilars, specialty drugs, and regulatory clarity.

Pharma rarely explodes upward in bull phases — but it rarely collapses either. It provides ballast. When risk appetite cools, money flows into defensives.

By early 2026, as volatility increases in cyclicals, pharma begins attracting fresh capital — not because it is flashy, but because it is steady.

The Bigger Pattern: Rotation is the Market’s Pulse

This is how India’s market breathes.

When rates fall and credit expands, banks lead.When capex surges and global demand firms, metals shine.When consumption recovers, autos accelerate.When global tech budgets revive, IT rebounds.When uncertainty rises, pharma steadies portfolios.

Sector leadership is rarely permanent. It is cyclical, tied to liquidity, policy, earnings revisions, and investor psychology.

For investors, understanding rotation matters more than chasing headlines. The question is not “Which sector is hot today?” but “Where are we in the earnings cycle?”

India’s structural story remains intact financialisation of savings, rising consumption, digital transformation, healthcare expansion. But within that story, money will continue to rotate.

And that rotation disciplined, data-driven, earnings-backed is what keeps portfolios alive.

FMCG's Rural Reset

Contrast with a HUL warehouse in Uttar Pradesh, where quick-commerce bites volumes. Nifty Consumption lagged at 7.29% YTD 2025, dragging despite rural revival narratives.

Nestle adjusted to private labels, with monsoon-aided sales but weak ad demand. Earnings cycles here shine in slowdowns, positioning for future inflows.

Powering the Full Cycle

India Inc's Q3 FY26 aggregate net profit hit 12.6% YoY for 3,400 firms, with BFSI at 11%, telecom flipping to ₹900 crore profit from losses. Nifty Financial Services rose 16.44% YTD.

Rotation follows: Early cycle favors autos/metals (21%+ gains), mid favors banks (16-27%), late defensives like pharma/IT/FMCG. Realty perks up 4.3% on GST slabs easing housing.

Earnings as the Driver

Q3 FY26 stars: Capital goods 20%, realty 60% YoY profits, while IT margins pinched. Overall revenues up 6.9%, signaling broad strength amid caution.

NSE data shows cyclicals led 2025, defensives eye 2026 as rates bottom. PSBs' 27.77% exemplifies how earnings cleanups ignite runs.

This rhythm boom to bust to rebound defines India's market. Spot the cycle, ride the leaders: From SBI's surge to TCS's pivot, earnings cycles reveal where money flows next.