'Avoid these kind of stocks in 2026' — Nomura shares three pieces of advice for investors

Brokerage firm Nomura, in its 'India Equity Strategy' note, has said investors should be selective and avoid high valuation, narrative-driven stocks, going into the new year.

Here are the three things the investment banking firm wants investors to keep in mind going into the new year:

Don't chase 'narrative stocks' at high valuations

"Post the pandemic, narratives played a dominant role. The disruptions, readjustments and changing geopolitics led to new narratives gaining traction, driving significant increase in valuations," it said.

The segments with positive narrative includes defence, power equipment suppliers, electronics manufacturing services (EMS), hospitals, hotels, real estate and chemical / CRDMO. High valuations are likely to limit the upside as fatigue in the narrative sets in, it said.

In such cases, the risk-reward is unfavourable, in the brokerage's assessment. Even small disappointments could lead to a material correction in stock prices. Similarly, even a small improvement in narrative compared to expectations can drive meaningful appreciation in stock prices supported by some rise in earnings and higher increase in valuation multiples, Nomura said.

Hence, the brokerage recommended a selective bottom-up approach. "We should prefer stocks where the narrative can improve at the margin over the next one year or where valuations are reasonable and stocks can move higher as earnings come through or beat current Street expectations over the next 12 months," it said.

Such segments include commercial vehicles, pharmaceuticals, IT services and NBFCs, it added.

Some Exposure To Underperforming Exporters

Nomura is of the view that investors can widen their portfolio with stocks that have international exposure as the global macro outlook is relatively sanguine at the moment. Hence, it is positive on IT stocks, it said.

While the analyst had preferred stocks with exposure to India compared to international markets and preferred consumption over investment theme through most of 2025, it now is of the view that to some extent, the theme has run its course. Hence, it will be more selective on consumption, it said.

Scrutinise companies that rely on government support

Nomura has advised investors to closely evaluate the strengths of companies that benefit from government supports, such as production-linked incentive (PLI), and where the government intervention with taxes can be high. It expects the government will be selective with subsidies and would look for avenues to mobilise additional resources because of revenue shortfall.

The brokerage has set a Nifty 50 target of 29,300 for the end of 2026 and also highlighted 20 stocks that it is betting on for the new year. You can read more on that here.