Expect a shift from derivatives to cash-market investing: Emkay's Karwa

As the global artificial intelligence (AI)-led trade moderates due to rich valuations, India will re-emerge as one of the most attractive growth markets in a slowing global environment, Karwa said

The next phase of growth for brokerages, said Krishna Kumar Karwa, managing director, Emkay Global Financial Services in a telephonic interview with Puneet Wadhwa, will be led by advisory-led, value-added offerings that includes comprehensive wealth solutions that generate recurring and market-agnostic revenue streams, enhancing revenue quality and customer stickiness. Edited excerpts:

 

Will Indian equities continue to give a tepid performance compared to global peers in 2026 as well?

 

Over the past 12 months, the Nifty 50 has underperformed most major emerging market (EM) indices. However, this needs a more balanced perspective. Over a two-year horizon, several key markets including Mexico, Brazil, Indonesia and the Philippines have delivered returns broadly similar to or lower than India (in local currency terms).

 

 

A closer look also shows that the significant outperformance has primarily come from technology-heavy markets like the US, Taiwan and Korea, highlighting India’s current gap in technology depth and R&D capabilities. Additionally, Indian equities were substantially more expensive than most EM peers during 2024, and India’s geopolitical positioning also influenced capital flows and market sentiment.

 

We expect India to outperform global markets in 2026, supported by government-led stimulus measures including income-tax cuts, monetary easing and GST reduction, which should revive discretionary consumption and accelerate economic activity. The cyclical slowdown seen between April 2024 and September 2025 is now behind us.

 

What are the key concerns?

 

While valuations remain elevated, this is a concern only if earnings stagnate. We expect earnings growth to accelerate meaningfully from the second half of fiscal 2025-26 (FY26), positioning India favourably at a time when the global economy is likely to slow due to tariff-related disruptions and front-loaded demand.

 

When do you see incremental foreign money chase Indian stocks?

 

Foreign institutional investors (FIIs) ultimately chase growth, as long as valuations are reasonable. Even in the recent period of equity outflows, FIIs have deployed close to $8 billion into Indian debt, despite a $17 billion outflow from equities — a clear vote of confidence in India’s macro and structural story rather than an exit from the country.

 

We expect 2026 to mark a strong revival in FII flows into Indian equities. As the global artificial intelligence (AI)-led trade moderates due to rich valuations, India will re-emerge as one of the most attractive growth markets in a slowing global environment.

 

Aren’t valuations a concern for them now?

 

India’s relative valuation premium has corrected meaningfully. MSCI India’s one-year forward price-to-equity (P/E) premium over MSCI EM has compressed sharply and is now well below its 10-year average — almost near the −1 standard deviation mark if we consider the past five years. This sets up a favourable entry point for global allocators.

 

What are the next growth levers for Indian broking firms?

 

Over the next year, we expect a gradual shift from derivatives to cash-market investing and brokers best positioned to capture this trend will benefit. While regulatory initiatives may compress yields, rising volumes should protect margins. The next phase of growth will be led by advisory-led, value-added offerings: comprehensive wealth solutions that generate recurring and market-agnostic revenue streams, enhancing revenue quality and customer stickiness.

 

AI-driven trade execution has emerged on some platforms. Is this the future in two–three years?

 

Technology can process data, news flow and historical trends, but judgement — understanding context, behaviour, market structure and future scenarios — remains human-driven. Direct-market-access (DMA) and execution-heavy institutional flows could see faster AI adoption. But a large part of the Indian market, especially the SMID segment, remains relatively illiquid and will continue to require human expertise for efficient execution and price discovery. AI will increasingly augment decision-making and execution, but meaningful disruption will come as markets deepen and liquidity improves over time.

 

What keeps you from launching a discount broking model?

 

We do not aim to be a pure execution-only platform. Our focus is on delivering value and supporting clients throughout their wealth-creation journey. That said, there is room for multiple business models — discount platforms attract first-time and DIY investors, while more mature clients seeking research, insights, advisory and wealth-building services naturally gravitate toward full-service firms like ours.