Small, midcaps may correct more in Samvat 2082: Nitin Bhasin, Ambit Eq

Nitin Bhasin of Ambit Institutional Equities expects consolidation in Indian equities through Samvat 2082 amid earnings normalisation and rising risks.

The outgoing Samvat 2081 failed to lit up investor portfolios as markets navigated US President Donald Trump’s tariff uncertainty, FII selling, and earnings slowdown. And while investors hope for a rebound in Samvat 2082, Nitin Bhasin, Head of Institutional Equities, Ambit Institutional Equities tells Nikita Vashisht in an email interview that markets may be entering a prolonged period of consolidation. Edited excerpts:

What's your outlook on Indian equities as we head into Samvat 2082?

We are currently in a period of rising market concentration and expect FY26 to be a year of earnings growth normalisation.

 

Past cycles suggest that there could be another 18 months of stagnation in large-caps (-2 per cent CAGR) and correction in midcaps (-10 per cent CAGR) and small-caps (-15 per cent CAGR). So far in CY-2025, large-caps have outperformed mid-caps and small-caps and we expect this trend to continue.

 

Stock market concentration has been rising since September 2024 with polarisation in EPS growth driving polarisation in returns. Our analysis shows that periods of rising concentration are associated with subsequent slowdown in both EPS and GDP growth. It is a stock-picker's market.

How do you see the domestic vs foreign institutional flows playing out in the new Samvat?

The structural shift in household savings towards equities is expected to keep driving domestic inflows. On the other hand, FII selling seems to have bottomed out, with index futures positioning near peak short levels – historically, a precursor to improving cash market flows.

 

India's relative underperformance versus other emerging markets is close to all-time highs, and with valuation premiums having moderated sharply, the stage may be set for a near-term return of FII interest. However, tariff-related uncertainty could remain an overhang on sentiment.  ALSO READ | Risk-reward is tilting in favour of Indian equities: Sonam Udasi, Tata AMC

With geopolitical tensions a persistent risk for the markets, how is the Indian market positioned compared to global peers in Samvat 2082?

In CY25 so far, India’s 10-year G-sec spread over the policy rate has widened at one of the fastest rates in Asia, reflecting rising fiscal and external risks. The bear steepening of the yield curve signals concerns around fiscal slippage and global uncertainty. Geopolitical tensions and a slowing global cycle could weigh on FDI, while India’s steep tariff regime risks eroding export competitiveness and pushing US importers to diversify.

 

High-frequency data and weak consumer sentiment point to softening consumption, while muted private capex and slowing government revenues could constrain investment. Indian equities are likely to face a phase of consolidation and heightened selectivity over the next 12-18 months.

Are there any risks that the markets are not pricing in?

After a strong earnings trajectory through FY22–24 and normalisation in FY25, investors are now banking on a sharp rebound in FY26/27. Many expect FY27 to mark the next earnings upcycle -- a view we challenge with evidence.

 

Micro evidence from FY26/27 estimates reinforces that earnings momentum is slowing, revisions are turning negative, and although large-caps hold up better than SMID, the overall trend remains unfavorable. US tariffs can further exacerbate pressure on impacted sectors’ earnings growth.  ALSO READ | India is well-placed to outpace other EMs: Amar Ambani, YES Securities

Are you shuffling your portfolio – reallocating between equities, debt, or gold exposure – at this juncture?

Ambit’s GRIP framework — which tracks Growth, Risk premium, Inflation, Interest rates, and Positioning — continues to suggest a cautious stance on equities, with asset allocation tilted in favor of bonds. Risk premiums are reversing as small and mid-cap returns flatten and growth momentum softens.

What would be your one high-conviction idea for this Samvat? For long-term investors, which sectors may offer compounding opportunities over the next 3–5 years?

PB Fintech is one such stock from the New-Age Tech basket that we prefer and has been a part of our G&C model portfolio since its inception. The company benefits from India’s low life/non-life insurance penetration giving large-room for growth.

How do you see corporate earnings growth pan out in the year ahead? Which sectors, according to you, are likely to lead the recovery, if any, and which ones can be a drag?

We expect this phase of earnings normalisation to continue, with Nifty’s FY26E EPS growth forecast at just 7 per cent -- among the lowest in recent years. While a modest pick-up in credit growth is expected in H2FY26, banks’ FY26E earnings growth is likely to moderate from recent highs, with limited upside even in FY27.

 

Conversely, US CEO confidence dropped to one of its lowest readings in June 2025. Historically, troughs in CEO confidence have coincided with bottoms in IT earnings revisions. With sentiment near extreme pessimism and margin repair underway through cost optimization and headcount reductions, IT earnings could deliver a positive surprise over the next year.