Earnings growth to move more in line with nominal GDP: Anand Shah

Valuations cap broad upside in 2026, with market returns increasingly driven by earnings growth in line with nominal GDP and selective stock-specific opportunities

The growth outlook remains constructive, but current valuations already reflect much of that optimism, says Anand Shah, chief investment officer, portfolio management services and alternative investment fund at ICICI Prudential Asset Management Company. In an email interview with Abhishek Kumar, Shah says the market offers selective opportunities, with some pockets looking expensive and others presenting attractive businesses with clear earnings visibility. Edited excerpts: 

What is your equity market outlook for 2026, and what are the key triggers to watch? 

The outlook remains constructive, supported by relatively stable domestic macroeconomic (macro) conditions and improving medium-term growth visibility. India today has healthier corporate balance sheets, a resilient banking system, and policy continuity, all of which support growth. 

Key triggers to watch include the delayed effects of recent fiscal and monetary measures, particularly on private investment and consumption. Any pickup in private capital expenditure (capex) will be a positive. On the global front, greater clarity on trade relations, geopolitical developments, and the trajectory of US interest rates will be important for capital flows and investor sentiment. 

Do current valuations leave room for meaningful upside, or will returns in 2026 be largely earnings-driven? 

At current levels, market valuations already capture some optimism around India’s medium-term growth prospects. As a result, valuation-led upside is likely to be limited. That said, valuations are uneven across the market. Certain pockets appear expensive, offering a limited margin of safety, but there are businesses where earnings visibility, balance sheet strength, and competitive positioning are not fully reflected in prices. 

This creates scope for selective opportunities. The market is shifting towards a phase where disciplined, bottom-up stock selection becomes critical. Investors should focus on companies with durable cash flows, strong governance, and the ability to grow faster than nominal gross domestic product (GDP). 

With GDP growth picking up, do you see earnings growth accelerating in 2026?

 

Earnings growth is likely to improve gradually in 2026, broadly in line with the recovery in nominal GDP growth. Over the past few years, corporate earnings outpaced GDP growth as cyclicals and financials recovered. From here, earnings growth is expected to be more in line with nominal GDP growth rates.

 

With an improving growth outlook, early signs of stabilising earnings revisions and selective upgrades are emerging across sectors. Earnings recovery, however, is unlikely to be uniform. Sectors linked to domestic demand, financial intermediation, and capex are better positioned to benefit. In this phase, earnings growth is likely to be more company-specific and bottom-up rather than driven by a broad macro upswing. Investors should therefore focus on business quality, balance sheet strength, and management execution.

 

What factors could derail the growth outlook?

 

The primary risks remain external. Prolonged geopolitical tensions, adverse developments in global trade, or a sharper-than-expected slowdown in major economies such as the US or China could hurt global risk appetite and, in turn, capital flows into emerging markets, including India.

 

Elevated valuations in certain global equity markets also raise the risk of sentiment-driven corrections that could spill over into domestic markets, even if India’s fundamentals remain sound. On the domestic front, a slower-than-expected recovery in private investment or consumption could subdue the earnings rebound. These risks underline the need for valuation discipline and caution in areas where earnings visibility is weak or expectations are stretched.

 

Which sectors are you structurally overweight and underweight in?

 

We remain structurally positive on financial services, particularly well-capitalised banks and insurers that stand to benefit from improving credit demand and strong balance sheets. We are also constructive on services-led consumption, capital market participants, and select domestic cyclicals linked to capex, infrastructure, and energy-related themes, where long-term visibility is improving.

 

In contrast, we remain cautious on export-oriented sectors such as information technology and parts of healthcare, where earnings visibility is constrained by global demand uncertainty and pricing pressures. We are also underweight in goods-led consumption segments, where volume growth and pricing power remain under pressure.

 

After a muted year in return terms, should investors raise equity allocation?

 

On a valuation basis, Indian equities are better placed today than they were a year ago. Investors can consider increasing their equity allocation in a measured manner, particularly through systematic or staggered investments. As Indian equities move into a more mature phase of the market cycle, opportunities remain, but outcomes are likely to hinge on informed stock selection. 

The price of growth

• Upside has limits: Valuations already reflect optimism
• Earnings take the wheel: Profit growth to track nominal GDP
• Selectivity wins: Stock-specific opportunities amid uneven pricing
• Domestic over global: Financials and capex-linked plays preferred
• External risks persist: Geopolitics and global growth remain key threats