“I think this always happens every few years in the market. It’s nothing new. If you look back on your memory, we had a very similar situation in 2022. 21 was a great year and the 22 index was kind of struggling and towards the end it picked up and there was a similar sentiment and then we had a great year 23 and 24 and 25 was a lukewarm year.”According to him, the current phase resembles a classic consolidation period rather than a structural collapse. “Fast forward we are looking at a year of consolidation, a year of many macro-positive developments,” he said, pointing to a series of supportive measures over the past 12 months. These include monetary easing by the Reserve Bank of India through interest rate cuts and liquidity injections, in addition to government fiscal stimulus in the form of cuts in income tax and VAT.
“These are obviously macro factors that tend to impact growth with some lag and that’s what I think is likely to happen,” Khemani noted. He added that earnings growth has already started to pick up and should strengthen further. “We have already seen good improvement in earnings growth, which will only get better from here.”
What adds to its confidence are its valuations and relative performance. “We’re in a market that hasn’t done anything. Earnings have grown. It’s not that they’ve grown negatively. We’re in a market where India has significantly underperformed emerging markets this year… Valuations are quite good. Interest rates are trending downward. So all the positives have been taken and I really believe 2026 would be a better year than 2025.”
Where will profit pools emerge?
As markets enter the new year, Khemani sees clear sector opportunities. Banking and financial services remain a core belief. “Banking and financial services would certainly do well. Overall, we have been quite positive and we will continue to be quite positive. Monetary policy tends to benefit from that.”
He is also constructive when it comes to consumption-related topics. “We’ve been pretty positive on consumer discretionary after August 15 and I think it’s probably going to be good. Usually the trend is a little bit longer, so at least 26, 27 could be a year for them.”
The manufacturing sector, which faced headwinds in 2025, could also make a comeback. While he acknowledges short-term dampeners such as US tariffs, Khemani believes these challenges are temporary. “Once that’s sorted out, you might see some kind of improvement happening there… 26 could be a good year for production-oriented play, which probably wasn’t that good in 2025.”
The markets are anticipating profits
As for whether markets will wait for earnings numbers or anticipate the recovery, Khemani emphasizes that stocks tend to be ahead of fundamentals. “If you see, the market bottomed out in mid-April and recovered from there, while revenues only started to meaningfully recover in the second quarter. So normally the market always tends to forecast ahead and trade ahead.”
He estimates earnings growth for the coming year at around 14 to 15%, which he believes is enough to support higher share prices. “There are no structural risks, valuations have fallen and interest rates are falling. So all these things are promising and point very well towards a good stock market.”
Returns on multiple assets may normalize
Gold and silver also posted strong performances last year, boosting multi-asset strategies. However, Khemani cautioned against extrapolating that trend. “Gold and silver tend to be in something of a spurt… we’ve seen a very big rally. While I’m not a huge expert on gold and silver, it seems like a lot of it is lagging.”
He suggested that as stocks deliver stronger returns and metals consolidate, multi-asset funds may not replicate the stellar performance of late. “25 was a year of bad stock performance and great, excellent metals performance… If you expect a good stock year and a not-so-great metals year, you’re not going to see a similar approach or a similar outcome there.”
Adhering to quality in the financial sector
Within the financial services industry, Khemani remains clear about his preference for larger, well-capitalized players. “In terms of lending, which is a leveraged activity, we have always chosen to stay in mainstream large corporates… because the cost of capital, which is the most important aspect of lending, is often lowest for larger NBFCs… or bigger banks.”
According to him, smaller names are best approached tactically rather than structurally. “Even though we have played against a smaller player at some point, it has always been a short-term tactical approach rather than a structural holding.”
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