How do you interpret the current situation on the stock market – how long can this consolidation phase last?
The current situation in the stock market reflects a phase of consolidation, but the underlying fundamentals are improving. We see an acceleration of economic growth; corporate profit growth improves; The steps taken on the budgetary and monetary sides show their impact on the demand and consumption sides. We are likely to see higher occupancy rates in the corporate sector, and that will encourage private capital investment. We hope that India will be able to sign a favorable trade deal with the US and EU and also see a revival in exports. While global uncertainties persist, with the combination of strong earnings momentum, resilient domestic demand and bottom-up opportunities across large, mid and small caps, we believe markets are poised for an upward cycle from here on out.
Do you agree that the AI business is one of the main culprits behind FII outflow by 2025 as India has no AI-related interests for a global investor?
Over the past twelve to fourteen months, the Indian stock market has witnessed net selling by financial institutions. Several factors were at play: a slowdown in corporate earnings, geopolitical concerns, higher valuation comfort in some other emerging market countries and uncertainty surrounding US trade tariffs. While the lack of AI-focused actions is one of these many reasons, we do not see this as a major deterrent to FII flows. India has always offered strong diversification to global portfolios due to its unique demographics, faster economic growth and a diversified basket of high-quality companies. After significant relative underperformance over the past 12 to 15 months against the emerging markets index, Indian markets now offer improved growth-valuation dynamics for global investors. India today offers a unique investment scenario: strong growth prospects, robust balance sheets and a stable government. As the emerging market bull cycle enters its next phase, a high-quality market like India should see a recovery in capital flows. A likely rise in earnings in H2FY26 and FY27 could provide further impetus.Indian IT stocks are seen as AI losers. Do you think this could be an advantage when the tide turns against AI stocks?
It is a fact that India is not seen as one of the pioneering countries in AI-related developments. However, it is still too early to draw conclusions about the future as the entire AI landscape is still in its nascent stages and Indian tech companies could potentially be an intermediate step. Indian companies are investing in AI and data centers, which could strengthen their value proposition in the future.The global AI cycle is still evolving. It has attracted significant investor interest worldwide and valuations have increased rapidly and substantially. Previous market cycles show that a correction is imminent. However, Indian IT companies are likely to grab attention once business growth picks up, which will depend on various macroeconomic and business parameters.
What is your outlook for earnings growth and margin trends in key sectors heading into 2026?
Looking ahead to fiscal 2026, earnings growth and margin trends are expected to improve, although these will vary by sector. For FY26, we expect Nifty earnings growth to approach double digits and accelerate to mid-to-high teens in FY27, reflecting both macro stability and selective sectoral momentum.
We see continued resilience within the banking and financial services sector. The consumer-facing NBFCs are likely to benefit from improving credit demand and household indebtedness, supporting both revenue growth and stable margins. Capital markets companies, which have underperformed recently, are poised for an earnings recovery as volumes pick up.
The consumption space is showing the first signs of broad-based strength. FMCG, high-speed trading, home improvement segments and consumer electronics, which have lagged in recent years, are now positioned for recovery. With demand improving, these companies should also witness an expansion in margins. Companies with scalable operations, strong cash flows and healthy ROEs are best positioned.
Certain pharmaceutical and CDMO companies continue to enjoy strong growth prospects. Margins remain robust thanks to operating leverage and pricing power in niche segments, while expansion in regulated markets supports sustainable earnings growth.
There is a significant spread in growth and margin trends between sectors. Bottom-up selection of high-quality companies, rather than mere sectoral allocations, remains crucial.
Given the high valuations in certain sectors, where do you see opportunities to generate alpha in the current market?
Large caps are fairly valued with improving earnings momentum, while mid and small caps offer selective opportunities through bottom-up stock selection of quality companies. The Nifty 50’s valuations are slightly above the ten-year average. However, it is important to note that the composition of the Nifty 50 has evolved significantly over the past decade, shifting from high capital investment sectors to high return on equity, retail and consumer-facing sectors. This structural transformation justifies a higher price-to-earnings ratio compared to historical averages.
We see opportunities for selective stock picking in segments such as BFSI, home improvement, consumer electronics, select chemicals, metals and even parts of the pharmaceutical sector and CDMOs, where growth visibility remains healthy. We believe that a disciplined bottom-up approach can lead to meaningful outperformance in these sectors.
As a keen observer of behavioral finance, what key investor patterns or biases have you noticed among retail participants over the past year, especially during a period when markets were delivering subdued returns?
One of the most prominent behavioral patterns we’ve observed among retail investors over the past year is recency bias. Many participants tend to focus on very recent events rather than the broader, longer-term context. For example, when it comes to the consumption rebound, discussions are often event-specific (such as the benefit of a VAT rate cut for certain businesses in the short term), rather than taking a holistic view of the long-term prospects. Few investors seem to take into account the cumulative income and wealth effects resulting from multiple policy and market measures. This focus on the immediate past can lead to undervaluation of opportunities in sectors that have been undervalued or underperformed over the past two to three years.
These behavioral patterns suggest that long-term investors who look beyond recent performance and focus on structural growth and quality fundamentals are better positioned to capture upside potential, while those who rely too heavily on short-term returns risk missing the broader opportunities.
Despite subdued returns, 2025 saw markets increasingly focused on niche themes such as data centers, pre-engineered buildings (PEB), semiconductors and more. What themes are you optimistic about for 2026?
Financialization and digitalization remain strong drivers in the BFSI and capital market segments, with UPI adoption and under-penetrated areas such as equity investments, insurance and online banking creating long-term potential.
Rising prosperity and premiumization continue to drive consumption and support growth in FMCG, high-speed commerce, consumer electronics and real estate-related consumption.
Healthcare and wellness provide opportunities for multiple sectors, including hospitals, diagnostics, domestic and export pharmaceuticals, and CDMOs, fueled by increased affordability, insurance penetration, and global supply chain shifts
Platform companies within the financial and consumer sectors, which have strong customer loyalty and a business moat, could also become attractive growth ideas for investors.
If 2026 also turns out to be a year of consolidation, how much more reasonable could Nifty valuations be considering 8-10% earnings growth?
We do not expect 2026 to be a year of long-term consolidation. In a study we conducted, we found that large-cap earnings multiplied about thirteen times between 2004 and 2025, and benchmarks also rose about thirteen times, mimicking the underlying earnings growth trajectory. For FY26, we expect earnings growth to be close to double digits, accelerating to the mid-teens in FY27. If the market simply mirrors this trajectory, investors can reasonably expect gains in a similar range.
Currently, Nifty is already trading below the intrinsic value that we calculate internally. Short-term volatility, especially due to global factors, can cause temporary dips, but these should be viewed as opportunities to add exposure with a long-term lens.
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