The worst phase of the recent stock market correction may already be behind investors, with small-cap stocks emerging as the likely leaders of the next bull market, according to Manav Chopra, Executive Director at Nuvama Institutional Equities.
Speaking to NDTV Profit, Chopra said Indian equities are currently moving through a transition period rather than heading into a prolonged bear market. He pointed to improving market breadth, strengthening financial stocks and easing macroeconomic concerns as evidence that a fresh upward cycle may already be underway.
“We have already formed a very strong low in April. More or less, the worst of 2026 is behind us,” Chopra said.
Market Consolidation Phase Nearing Completion
Chopra believes the current market cycle is following a familiar historical pattern.
According to him, major bull runs are typically followed by six to seven quarters of consolidation before the next phase of growth begins. After the sharp rally witnessed between 2020 and 2024, Indian equities have spent nearly seven quarters digesting gains and correcting excess valuations.
“The market appears to be completing that consolidation process now,” he said, suggesting conditions are becoming favourable for a renewed uptrend.
Broader Market Participation Signals Strength
Unlike previous rallies driven largely by a handful of large-cap stocks, Chopra believes the current market environment is showing healthier participation across segments.
He highlighted the strong performance of small-cap and mid-cap stocks during April and May as an encouraging sign.
“No bull market starts unless the broader market starts participating,” Chopra noted.
One of the key indicators he monitors is the performance of the Nifty 500 relative to the Nifty 50. According to Chopra, broader market indices have already started outperforming benchmark large-cap indices, a trend that has historically preceded stronger market advances.
He also pointed to a technical breakout in the Nifty Next 50 index, indicating that leadership is expanding beyond India’s largest companies.
Banking Sector Could Drive Next Market Rally
Chopra believes the banking and financial services sector (BFSI) could play a critical role in powering the next phase of gains.
The sector has lagged behind broader markets in recent years, partly due to sustained foreign institutional investor (FII) selling. However, Chopra sees signs that the underperformance cycle may be ending.
“BFSI accounts for nearly 38% of the Nifty. A sustained market move cannot happen without support from financials,” he said.
Among banking stocks, he prefers mid-sized private sector lenders that could benefit disproportionately if investor sentiment improves.
Preferred Banking Picks
- Bandhan Bank
- RBL Bank
- Federal Bank
According to Chopra, these lenders may offer stronger upside potential than some of their larger counterparts during the next phase of the market cycle.
Tyre Stocks Among Top Sectoral Bets
Beyond financials, Chopra identified tyre manufacturers as one of the most attractive investment themes over the next six to 12 months.
The sector stands to benefit from:
- Lower raw material costs
- Improving profit margins
- Positive technical setups
- Healthy demand trends
He believes these factors create a favourable risk-reward opportunity for investors seeking sector-specific exposure.
Infrastructure And Capex Themes Remain Attractive
Chopra also remains positive on infrastructure and capital expenditure-linked sectors, particularly companies linked to power and engineering.
Many of these businesses have emerged from prolonged consolidation periods and could benefit from continued government spending, infrastructure expansion and industrial investment.
Areas he highlighted include:
- Power infrastructure companies
- Engineering firms
- Capital goods manufacturers
- Industrial project contractors
Shipping And Shipbuilding Stocks On Radar
Another niche segment Chopra believes investors are overlooking is shipping and shipbuilding.
According to him, ownership levels remain relatively low despite improving business fundamentals and growing interest in maritime infrastructure.
As India’s focus on logistics, ports and shipbuilding capacity expands, these companies could attract greater investor attention.
Small-Caps Seen As The Market’s Next Dark Horse
While Chopra sees opportunities across multiple sectors, he remains particularly bullish on small-cap stocks.
He noted that the ratio of small-cap stocks to the broader market has broken out of a five-year consolidation pattern, which historically signals the beginning of a period of sustained outperformance.
For investors searching for the next major market theme, Chopra believes small-caps could once again emerge as the standout performers.
“The broader end of the market looks positioned for another year of outperformance,” he suggested.
What It Means For Investors
Chopra’s outlook suggests that investors may want to look beyond traditional large-cap names and focus on sectors and segments showing improving participation.
Key themes highlighted include:
- Small-cap stocks
- Mid-cap stocks
- Private sector banks
- Tyre manufacturers
- Infrastructure and capex plays
- Shipping and shipbuilding companies
While volatility may persist in the short term, Chopra believes the broader market structure is improving and that Indian equities are laying the foundation for the next phase of the bull market.