Markets to continue rising till March: Jio BlackRock CIO sees largecaps and midcaps outperforming smallcaps

Jio BlackRock AMC will launch its new arbitrage fund NFO between December 9 and 11, positioning it as a tax-efficient, zero-risk investment option at a time when market sentiment is improving and returns are declining. CIO Rishi Kohli says arbitrage – classified as an equity product but behaves like fixed income – is a “logical next step” for the fund house after launching cash, index and flexicap.Kohli notes that arbitrage returns tend to rise with market sentiment, higher futures spreads and higher volatility – all of which has started to improve in recent weeks. “Spreads had cooled last year but have risen significantly over the past two months,” he said, highlighting that increasing churn opportunities in volatile markets are also supporting returns.

The profit growth cycle is over; markets are entering an early recovery phase

Kohli turned incrementally bullish over the past six weeks, expecting the Nifty to rise through December on improving earnings momentum and favorable seasonality. “For four to five quarters after October 2024, earnings continued to decline. The last quarter shows the first signs of a turnaround,” he said.

He expects two strong years for Indian equities from FY26, depending on the easing of tariff-related uncertainties and strengthening of gains between December and March.

Largecaps and midcaps, he says, are likely to outperform in the next six to nine months, while smallcaps may lag after years of outsized gains. “Smallcaps have had an extraordinary run. Historically, if that happens, the next few years could be subdued,” Kohli added.

Consumption, cars and BFSI are among the top sector themes

Kohli sees autos as the strongest consumption theme for the year ahead, while FMCG remains ‘mixed’.
Financial institutions – especially select banks – are also becoming attractive after several supportive measures from the RBI and the government.

On the macro front, clarity on rates, improving earnings and favorable liquidity conditions are the key drivers for a more sustainable recovery, he said.

Arbitrage Outlook: What’s Driving Returns Now?

Kohli highlighted three levers that will determine arbitrage returns:

• Market interest rate levels
• Futures spreads driven by retail and HNI sentiment
• Volatility-led Churn Opportunities

“With virtually no risk and better after-tax returns than liquid funds, arbitrage becomes compelling in this environment,” he said.