‘Double digit earnings growth in 2026’

Investors should have moderate return expectations from the stock market in 2026, according to Nilesh Shah, managing director (MD) of Kotak Mahindra AMC.

- Nishant Kumar [e-mail]

He believes returns will come from select sectors and stocks rather than a broad-based rally.In an interview with Mint,

Shah said the “worst of valuation excesses could be behind us,” even though there is a substantial premium in the small-cap segment.

Edited excerpts:

Is the worst behind or is there more pain ahead?

Markets are near all-time highs, but beneath the index, many stocks are significantly below their peaks. About 73% of Nifty 500 stocks are down more than 10% from their 52-week highs, with pain more pronounced in midand small-caps than in large-caps. Earnings growth for Nifty 50 has been in single digits for six consecutive quarters, which explains underperformance and FPI (Foreign Portfolio Investment) selling.

We believe earnings growth is bottoming out and is likely to rebound into double digits in the coming year.

Valuations have corrected from excessive premiums to long-term averages.

This suggests the worst of valuation excesses is behind us, but volatility is likely to remain due to geopolitical risk and return expectations need to be moderated.