'We Are Poised For An Exciting 2026'

'Earnings growth will be the main driver of India's market in 2026, with profits expected to rise 9% to 10% in H2 FY26 and accelerate to 12% to 15% in FY27.'

The equity market is likely to perform better in 2026 as the earnings growth trajectory improves and valuations have eased, says Nimesh Chandan, chief investment officer at Bajaj Finserv Asset Management Company.

In an e-mail interaction with Abhishek Kumar/Business Standard, Chandan adds that global factors, particularly the US economic slowdown, could play spoilsport.

How do you see 2026 shaping up for the Indian market? What will be the key drivers?

We are poised for an exciting 2026. Earnings growth, which is likely to improve going forward, will be the key driver of market returns.

For the second half of 2025-2026 (FY26), corporate earnings are projected to grow by 9 to 10 per cent, with growth expected to accelerate to 12 to 15 per cent in 2026-2027.

It is likely that we will enter a virtuous business cycle, with exports and domestic consumption expected to pick up.

A potential trade agreement with the US and the European Union will boost exports, while the domestic demand effect from lower direct and indirect taxes is increasing disposable income and savings.

The wealth effect from rising gold prices, coupled with stable inflation, will also lift consumer confidence and spending.

What are the potential headwinds?

The key risks for 2026 are likely to emerge from outside India. The US may face an economic slowdown and high inflation.

High valuations of global artificial intelligence companies are coming under scrutiny.

Debt-to-GDP ratios in many countries are quite high, which could put pressure on bond markets.

Protectionist measures in some countries could also create headwinds for trade and capital flows.

Has the recent correction made valuations attractive, or does one still need to be cautious?

The recent correction has created selective opportunities across the market.

Largecaps are trading below fair value, while midcaps and smallcaps show pockets of comfort that allow for long-term accumulation of quality stocks.

Our recent analysis of consensus target prices for BSE 200 companies shows that 175 of them have upside potential, and about 110 offer double-digit gains, indicating meaningful opportunities even near all-time highs.

IMAGE: Nimesh Chandan.
Photograph: Kind courtesy Bajaj Finserv Asset Management

What are the key trends in numbers and commentary in second-quarter results so far? Is the earnings revival on track?

Market commentary suggests that H2FY26 could be better.

While some uncertainty remains around export-driven businesses due to US tariffs and the slowdown, domestic earnings growth has picked up, led by increased domestic demand.

Q2FY26 earnings have exceeded expectations, driven by strong performance in banking, domestic consumption-led businesses, and select capital goods companies.

Management commentary has turned more constructive, particularly among firms focused on domestic consumption, reflecting improving demand conditions.

These early indicators confirm that the earnings recovery is progressing well, supported by robust business fundamentals and resilient domestic demand.

While we remain vigilant regarding global uncertainties and sector-specific dynamics, Q2 trends reinforce confidence in a sustained trajectory for corporate earnings growth.

Which cohort of the market now offers better risk/reward?

Selective opportunities have emerged across key sectors. Consumption and pharmaceutical remain attractive, with improved growth visibility, as earlier concerns -- such as regulatory issues and tariffs -- have largely been addressed.

Real estate and metals present attractive contrarian opportunities, with many companies providing compelling entry points as structural demand drivers unfold.

Chemical, after years of underperformance, is showing signs of recovery and selective accumulation.

Meanwhile, banking, financial services and insurance continues to benefit from domestic credit growth and reform-led tailwinds, reinforcing their favourable risk/reward profile.

The consumer discretionary segment stands out -- especially in white goods, home improvement, and service categories such as quick commerce and quick-service restaurants.

In these areas, valuations remain below the long-term average, while growth fundamentals remain robust.

In recent years, experts have backed multi-asset funds, but with equities underperforming lately, are active equity funds better positioned now?

Multi-asset funds play a strategic role in portfolio construction, offering an asset allocation approach designed to balance risk and return across market cycles.

During strong equity rallies, these funds may lag diversified equity strategies.

However, for investors seeking equity exposure within a diversified framework, equity-oriented multi-asset funds remain a suitable option.

They provide participation in equity upside while enhancing portfolio stability through allocation to other asset classes.

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Feature Presentation: Rajesh Alva/Rediff