2025 was a reboot year – geopolitical tensions came to our doorstep, tariff tensions drew India into its vortex, Indian currency hit new lows – a lot that we took for granted changed overnight.
2026 will be the refresh year – one where we take stock of the changed world, understand the new rules of the game and plan the way forward accordingly. From an investment perspective, winners of the past may no longer be winners of the future.
2027 will be the reclaim year – one where we reclaim growth momentum – albeit with potentially new set of leaders driving growth.
We came off an earnings supercycle during 2020-2024, we saw an earnings slump and we are now seeing earnings recover on the back of fiscal measures, monetary impulse and a depreciated currency which is actually good for growth – once it stabilizes.
Too much money has gone into chasing yesterday’s winners – which is what is causing investor dissatisfaction. An example is small caps –which now account for over 20% of the MF industry’s AuM – more than twice their representation in the market. We aren’t seeing evidence of materially superior earnings growth in small caps.
On the other hand, some pockets of the market that are now showing earnings recovery and growth momentum are being ignored – merely because they were not winners in recent times.
Headline market valuations look high as we have large number of companies not doing well – but that doesn’t mean there aren’t enough companies that look attractive on growth and valuations today.
This is a buy-the-dip market now and not sell-the-rise one, as we are moving out of a low earnings growth phase into one which is going to get incrementally better over the next couple of years.
ABSL’s annual outlook deck maps out sectors into 4quadrants – the first being dark horses (turnarounds, sectors emerging out of prolonged slump), the second and third represent sectors in momentum (varying degrees) and the 4th represents sectors whose cycle is on the wane.
The first quadrant includes IT services, consumer staples, materials (chemicals, building materials).
Sectors in momentum include banks, insurance companies, metals, cement, auto ancillaries.
Sectors where the best of momentum is now perhaps behind them include pharma, capital goods, industrials, real estate, PSUs ex-financials – these will be sell-on-rise sectors.