Equities poised for comeback in 2026 as growth improves: Ramesh Mantri

BFSI stocks offer strong fundamentals and attractive valuations, says WhiteOak's Ramesh Mantri, as growth improves and equities look set for a 2025 comeback

Banking, financial services and insurance (BFSI) stocks stand out currently with strong fundamentals and attractive valuations, says Ramesh Mantri, chief investment officer, WhiteOak Capital AMC. In an interview with Abhishek Kumar in Mumbai, he adds that the outlook is also positive for the pharmaceutical and healthcare sector. Edited excerpts: 

As the new year begins, how do you assess the equity market, and what are the key factors you will be watching closely? 

It is difficult to predict near-term market movements. However, based on current trends, the equity market appears poised for a comeback in 2026. 

Markets have largely remained range-bound since September 2024, indicating a time correction. At the same time, growth is showing early signs of improvement. Industrial activity has picked up, as reflected in strong November industrial production data, while inflation remains benign. 

Lower inflation combined with improving growth is supportive for equities. Even the September quarter, which was expected to be weak due to tariff-related concerns and delayed GST benefits, turned out better than anticipated. 

Our asset allocation model had reduced equity exposure to its lowest level in the past two-and-a-half years around September 2024. Currently, it is around 10 per cent overweight on equities. 

How important is the India-US trade deal as a trigger? 

The deal should have been concluded by now, but it has been delayed. Beyond a point, it does not matter whether it happens in a few weeks or a couple of months, as long as the outcome is reasonable.

 

I believe both countries are pragmatic enough to arrive at an agreement over the medium term, given their strategic and economic partnership.

 

What are the key risks you see at this stage? 

Growth is picking up, so risks on that front have reduced. The bigger unknown remains global geopolitics, which is inherently unpredictable, including developments in our neighbourhood.

 

Another concern is the increasing tilt of government finances towards welfare subsidies, especially at the state level. This could constrain capital expenditure, which is critical for long-term growth.

 

What is your earnings growth expectation? 

Last financial year (FY) was weak, the current year (FY26) has also been impacted by factors such as GST-related disruptions and the delayed US trade deal. Next year should be more normalised.

 

Earnings growth should broadly track nominal GDP growth, which itself should improve. We could see low-teens earnings growth. While lower inflation does weigh on nominal growth, I do not believe low inflation is sustainable over the long term.

 

Which sectors look attractive currently? 

Banking, financial services and insurance (BFSI) stands out, with strong fundamentals and attractive valuations. Pharmaceuticals and healthcare also look appealing, supported by steady growth and reasonable valuations.

 

Information technology (IT) valuations are attractive on a historical basis, but uncertainty remains around how artificial intelligence may disrupt the industry. That said, similar concerns existed around digital technologies in the past, which eventually became growth enablers.

 

Given your indicators suggest being overweight equities, what should investors do? 

Multi-asset funds are structurally strong products as they offer exposure to multiple asset classes — typically equity, debt and precious metals — and allow professional rebalancing without tax implications.

 

However, the strong performance of multi-asset funds in recent years has been largely driven by precious metals. Given the current enthusiasm around gold and silver, a repeat of past returns appears unlikely.

 

Gold tends to perform well during periods of uncertainty and mistrust. If it were to significantly outperform from here, it could signal deeper global issues. Current sentiment suggests equities are under-owned, and relative performance could gradually shift in their favour.

 

How do you approach portfolio construction, and why maintain a high number of holdings? 

As bottom-up investors, we focus on identifying opportunities across sectors while keeping the portfolio reasonably balanced. We avoid excessive concentration, which can make outcomes overly dependent on a few themes.

 

We also benefit from a large research team covering a wide universe, helping us identify alpha opportunities that may be overlooked. Even small allocations to high-quality smaller companies can generate meaningful alpha over time. Liquidity and deployment constraints naturally lead to a higher number of holdings.

 

How is your allocation across large, mid, and smallcap stocks evolving? 

Our flexicap fund portfolio is currently about 6-7 per cent overweight mid and smallcap stocks relative to the benchmark, which is lower than three years ago. We are seeking better opportunities in largecap stocks, particularly due to sector preferences such as banking, which is inherently largecap heavy.