Equity Markets 2026: Outlook, Risks and Strategy

PMS Bazaar recently organized a webinar titled “Equity Markets 2026: Outlook, Risks and Strategy,” which featured Mr. Ashish Chaturmohta, MD & Fund Manager – APEX PMS, JM Financial Limited. This blog covers the important points shared in this insightful webinar.

The webinar blog covers insights from Mr. Chaturmohta, which includes Mr Ashish Chaturmohta’s outlook on markets after 2025, covering India’s relative underperformance, valuation resets, FII behaviour, and global shifts. It highlights his “fusion investing” approach, earnings recovery expectations, and sector preferences such as banking, consumption and defence, while warning on overextended commodities and globally exposed sectors

Key aspects covered in this webinar blog are

A year of divergent performance
Valuation realignment and global headwinds
Inflation, rupee depreciation and the FII entry point
Global shifts: de-globalisation and rising debt
The fusion investing model and earnings growth
Sector focus for 2026
The consumption catalyst
Banking and the credit cycle
Commodities: the copper and silver story
The road ahead

Summary: India lagged global markets in 2025 but retains strong long-term fundamentals. Mr Chaturmohta noted weak breadth, small-cap declines, FII outflows, rupee depreciation and IPO-led liquidity drain. Valuations have normalized, making India relatively attractive. He expects earnings recovery in 2027-28, led by domestic consumption, banking, defence and select cyclicals. Liquidity stimulus, rural recovery and tax relief support demand. Banks may rerate. Copper faces structural deficit; silver needs caution. India offers a hedge if global leadership shifts from US megacaps to emerging markets, attracting capital inflows again.

Mr. Ashish Chaturmohta provided a comprehensive analysis of the global and domestic financial landscape, reflecting on the lessons of 2025 and projecting the trajectory for the coming fiscal years. He noted that while India faced a period of relative underperformance against global counterparts over the last twelve months, its long-term structural strength remains intact.

A Year of Divergent Performance

Mr. Chaturmohta began by highlighting the performance disparity seen in 2025. He observed that while the MSCI World Index delivered returns of over 20% and emerging markets soared by 30%—largely driven by China’s 28% surge—India’s index returns hovered closer to 10.5%. However, he urged investors to maintain a broader perspective, pointing out that on a five-year horizon, India has consistently outperformed, yielding 13.3% compared to the world index's 9.4%.

The speaker drew particular attention to the "missing" broad-based rally. He revealed that despite positive index headlines, nearly 80% of actively traded stocks ended the year in the red. The small-cap segment, in particular, faced a 6.6% decline on a one-year basis, contrasting sharply with its robust three-to-five-year compounding history of over 20%.

Valuation Realignment and Global Headwinds

Addressing the "valuation gap," Mr. Chaturmohta explained that the premium India usually commands over other emerging markets has narrowed significantly—from 100% down to 65%. Similarly, its premium over the world market has shrunk from 24% to just 8%. He argued that this makes India far more attractive from a relative valuation standpoint than it has been in recent years.

However, he did not ignore the pressures of 2025, specifically the $16 billion outflow from Foreign Institutional Investors (FIIs). He attributed this nervousness to:

US-India Tariff Uncertainties: Trade deficit concerns created significant market jitters.
The Yen Carry Trade: Rising interest rates in Japan have sparked a global liquidity shift, impacting emerging markets like India.
The IPO Liquidity Drain: Approximately $44 billion was raised via IPOs over the last two years, which Mr. Chaturmohta noted effectively "sucked" liquidity out of the secondary market.

Inflation, Rupee, and the FII Entry Point

On the domestic macro front, the speaker noted that CPI inflation remains within the RBI’s comfortable 6% target zone, though he expects a "wait and watch" stance regarding further rate cuts. A significant point of discussion was the 8% depreciation of the Rupee. While this created pressure in 2025, Mr. Chaturmohta suggested it now presents a strategic entry point for FIIs. With FII holdings at a decade-low of 15-16%, any stabilization in the currency could trigger a massive wave of re-entry.

Global Shifts: De-globalization and Debt

Looking at the global stage, Mr. Chaturmohta identified three critical trends: de-globalization, rising debt levels, and adverse demographics in developed nations. He highlighted China’s restrictions on silver exports as a prime example of the growing "disordered" world economy. In contrast, he noted that emerging economies possess more policy flexibility to navigate these structural shifts.

The Strategy: Fusion Investing and Earning Growth

Discussing the JM’s APEX PMS strategy, Mr. Chaturmohta described a "fusion" approach that blends fundamental analysis with technical and behavioral psychology. He referenced the legendary Peter Lynch, noting that Lynch’s success came from tracking "earning growth momentum" rather than just holding quality names indefinitely.

He acknowledged that 2025 saw a meaningful 10% downgrade in EPS estimates, which led to muted market performance. However, he expressed optimism for 2027 and 2028, projecting double-digit earning growth of 17% and 14%, respectively.

Sector Focus for 2026

Mr. Chaturmohta advised a selective approach. He cautioned against sectors with high global exposure—such as IT, textiles, and specialty chemicals—due to ongoing tariff risks. Instead, he recommended focusing on domestic consumption. He noted that government initiatives, including income tax relief and liquidity infusions of nearly five lakh crore, are designed to stimulate local demand. He concluded that while the global order remains in flux, India’s fair valuations in the large-cap space and the potential turnaround in earning growth provide a resilient foundation for the years ahead.

The "Fusion" Investing Model

Mr. Chaturmohta highlighted the JM’s Apex PMS strategy as a "fusion" of fundamentals, technicals, market dynamics, and psychology. He explained that identifying a fundamentally sound company is only the first step. The strategy utilizes a flexi-cap approach—spanning large to micro-caps—but layers it with quantitative analysis to catch sector rotations.

Mr. Chaturmohta emphasized that market psychology often dictates returns. He cited PSU banks as a case study: they underperformed for nearly 14 years despite stable fundamentals until a shift in perception triggered a massive rerating. "Market may remain irrational longer than one may remain solvent," he remarked, underscoring the need to align with market sentiment and greed-fear cycles.

The Consumption Catalyst

Looking ahead to 2026, Mr. Chaturmohta identified domestic demand as the primary engine for growth. He pointed to several tailwinds:

Liquidity Infusion: A CRR cut and government relief measures have released nearly 5 lakh crore into the system.
Fiscal Stimulus: Direct income tax savings and GST rationalization (dropping certain categories from 28% to 18%) are expected to boost household budgets by 6% to 10%.
Rural Recovery: A 7% above-normal monsoon is revitalizing the rural economy.

He predicted that this discretionary spending would flow directly into the Auto sector, impacting everything from two-wheelers to tractors. He noted that while government CAPEX execution might decelerate, the outlier remains Defense, driven by global indigenization trends and the Russia-Ukraine war's aftermath.

Banking and the Credit Cycle

The banking sector appears particularly promising. Mr. Chaturmohta noted that credit growth is shifting from 8-9% to a robust 13-14%. With private banks trading at 2.2 times price-to-book—well below historical averages—and PSU banks trading at significant discounts despite matching their private peers operationally, a major rerating is anticipated. He observed that as consumption boosts private CAPEX, the entire banking and NBFC space will benefit from improving Net Interest Margins (NIMs) and ROE profiles.

Commodities: The Copper and Silver Story

Turning to commodities, the speaker highlighted a 19-year breakout in Copper. He attributed this to a structural deficit caused by chronic underinvestment and surging demand from EVs, AI data centers, and renewable energy.

Regarding Silver, he urged caution despite its 300% return from recent lows. While industrial usage in EVs is significantly higher than in traditional internal combustion engines (75g vs 0.25g), he reminded investors of silver's "notorious" history in 1981 and 2011, where massive rallies were followed by 70-80% corrections. "Right risk management is essential now," he warned.

The Road Ahead

Mr. Chaturmohta concluded by noting that India serves as a natural hedge against global volatility. If a "shift from AI" occurs in the US "Magnificent Seven," India becomes an attractive destination for global capital. With Nifty large-caps trading at a fair 21x forward PE and earnings expected to grow at double digits in 2027-28, the outlook remains selectively bullish. He suggested that the biggest surprises would come from the turnaround in earnings growth and a narrowing premium relative to emerging markets.

Mr. Ashish covered all the topics mentioned above in-depth and answered questions from the audience toward the end of the session. For more such insights on this webinar, watch the recording of this insightful session through the appended link below.