Anubhav Mukherjee, the co-founder and fund manager at Prescient Capital, has provided a nuanced outlook for the Indian equity markets in the coming year. While he anticipates healthy corporate earnings, he warns that a broad-based rally is unlikely in 2026 due to overvaluations in several market segments.
Market Outlook: Growth Amidst Selectivity
In an exclusive interview, Mukherjee expressed confidence in the Indian economy's robust health entering 2026. He credited significant policy support in 2025—including income tax cuts, GST reductions, and a meaningful decline in interest rates—for setting a strong foundation. These measures are expected to drive a strong earnings rebound starting from the third quarter of the fiscal year 2026 (Q3 FY26), thereby supporting Indian equities.
However, he tempered expectations for a uniform market surge. "We feel that Indian equities will do well in 2026, though it will not be a broad-based rally as several pockets of overvaluation exist in the market," Mukherjee stated. This environment, he emphasized, will make prudent stock selection critical for investors seeking healthy returns.
Earnings and Sectoral Expectations for 2026
The upcoming earnings season is a focal point. Mukherjee predicts a meaningful recovery in earnings growth from Q3FY26, propelled by the trifecta of tax cuts, low interest rates, and a favourable low base from the previous year. He expects benchmark indices like the Nifty 50 and the Nifty 500 to deliver double-digit revenue and earnings growth. This is a significant turnaround from Q3FY25, where revenue growth hit a 16-quarter low for Nifty 50 at 4.5% year-on-year.
Infrastructure spending by the government, which has grown substantially in Q3FY26, is seen as a key tailwind for capital goods and infrastructure sectors. Furthermore, supportive RBI measures like interest rate cuts and improved liquidity have boosted credit growth and consumption.
Mukherjee highlighted specific sectors poised to outperform:
- Auto & Auto Ancillaries: Major beneficiaries of GST and interest rate cuts, with strong sales growth already visible. The premiumisation trend is providing an additional boost to ancillaries.
- Power Equipment: Companies in transformers, smart meters, and generators are riding multi-year structural tailwinds from global grid modernisation and soaring data centre power demand.
- Banks: Viewed as reasonably valued, with earnings expected to improve on the back of better credit growth and margin expansion from lower funding costs.
- Mid/Small Cap IT/ITES: Select companies with a strong focus on AI are expected to continue performing well, driven by sustained enterprise spending.
Investment Strategy: Look Beyond the Obvious
For the 2026 investment strategy, Mukherjee advises a highly selective approach. Investors should avoid companies with frothy valuations and poor cash generation. The focus must be on firms with attractive financials in high-growth sectors available at reasonable valuations.
Contrary to the prevailing narrative that small and mid-caps are uniformly expensive, Mukherjee offers a different perspective. He points to the large universe of over 3,000 listed companies beyond the top 100 by market cap. In this broader space, which has seen a significant drawdown from peaks, many niche and fast-growing businesses are now available at attractive valuations.
"Our belief is that investors should not look at valuations of benchmark small / mid-cap indices, and not blindly follow the current narrative painting all small/micro caps as expensive," he concluded. The key for 2026 will be to identify these hidden gems through diligent research.
