 "Shridatta Bhandwaldar, Canara Robeco AMC")
As the new year approaches, the prospects continue to look bright for financial services and consumer discretionary stocks in segments such as auto, select retail and platform companies, says Shridatta Bhandwaldar, chief investment officer- Equities at Canara Robeco AMC. In an email interview with Abhishek Kumar, Bhandwaldar adds that FMCG, cement, information technology (IT) and some global commodity sectors remain relatively weaker. Edited excerpts:
How do you expect the Indian market to shape up in 2026, and what will be the key drivers for returns next year?
We are far more constructive in CY 2026 compared with the year gone by. This optimism is driven by multiple factors. First, a potential resolution of US tariff challenges bodes well for exports and foreign institutional investor (FII) flow outlook. Second, we expect a cyclical revival in corporate earnings to low double-digit growth. This will be supported by a government consumption push through GST and personal income tax cuts, improving credit growth, interest rate cuts, surplus system liquidity, improving rural real wage growth, strong corporate and bank balance sheets, and a favourable base effect. Third, market valuations are now far more palatable than at the start of this year, with the Nifty50 trading at around 19 times the estimated financial year 2027 earnings, which is close to its 10-year historical average.
Do you see headwinds emerging?
We believe tailwinds will outweigh headwinds in CY 2026. That said, below-average inflation and weaker-than-expected corporate capex remain key risks. Inflation has undershot meaningfully over the past four to five quarters, which has pulled down nominal GDP growth to about 8.5 per cent (estimated) for FY 2026—among the lowest in several years. Lower nominal GDP growth can dampen corporate revenue growth, job creation and incremental capex. On the other hand, despite strong balance sheets, corporate capex has remained average due to global tariff-related uncertainty and domestic demand concerns.
Has the time correction made valuations attractive or does one need to still be cautious?
The past 15 months of market consolidation have made valuations fair, if not attractive. Large-cap valuations are near fair levels, while mid- and small-cap stocks continue to trade at a premium to their historical averages. More important than absolute valuations are the improving earnings outlook. Unlike the previous calendar year, when earnings were muted, the current earnings tailwinds provide comfort on valuations.
What are the key trends in numbers and commentary in Q2 results? When do you see earnings growth reaching desired levels?
Earnings growth was reasonably good across large-, mid- and small-cap companies. Importantly, the earnings disappointments seen over the past four quarters appear to be receding, with more companies meeting or exceeding expectations. The earnings downgrade cycle also paused for the first time in several quarters. Financials, industrials, auto and auto ancillaries, consumer discretionary segments, including select retail and new-age companies, and pharma delivered healthy results. In contrast, FMCG, cement, IT and some global commodity sectors remained relatively weaker.
Has the changed earnings trajectory led to any changes in portfolio composition (sectoral allocation)?
The portfolio remains largely bottom-up, with a focus on areas offering better earnings visibility over the next one to two years. We see strong prospects in financial services, consumer discretionary segments such as auto, select retail and platform companies, select industrials, pharma, telecom, hotels and hospitals for 2026 and beyond. IT and FMCG appear more tactical than structural opportunities. Consumer discretionary, healthcare, telecom and large financials remain the biggest overweights in our portfolios.
Which sectors do you believe are likely to lead the next up-cycle — and which ones remain structurally weak even after recent correction?
We expect leadership to emerge across sectors, with more bottom-up opportunities rather than broad-based sectoral moves. Financials, auto and consumer discretionary, select new-age companies, telecom, hotels and healthcare offer attractive prospects. Sectors facing rising competitive intensity due to easy access to capital, expanding distribution or technological disruption are likely to remain structurally weak. FMCG, IT and consumer durables remain challenging, while we remain cautious on global commodity sectors due to weak capital efficiency.
With equities underperforming recently, are equity funds better placed than multi-asset strategies now?
We believe equities could outperform multi-asset strategies, given their underperformance over the past 15 months. The incremental earnings and valuation context for equity products is far more comfortable now than it was 12–15 months ago.
