'Better valuations, earnings pickup set stage for stronger 2026'

As the new year approaches, the prospects continue to look bright for financial services and consumer discretionary stocks in segments such as auto, select retail and platform companies, says Shridatta Bhandwaldar, chief investment officer, equities, at Canara Robeco AMC. In an email interview with Abhishek Kumar, Bhandwaldar notes that FMCG, cement, information technology (IT) and some global commodity sectors remain relatively weak. Edited excerpts:

- ABHISHEK KUMAR

How do you expect the Indian market to shape up in 2026, and what will be the key drivers for returns next year?

We are far more constructive in CY 2026 compared with the year gone by. This optimism is driven by multiple factors. First, a potential resolution of US tariff challenges bodes well for exports and foreign institutional investor (FII) flow outlook. Second, we expect a cyclical revival in corporate earnings to low double-digit growth. This will be supported by a government consumption push through GST and personal income tax cuts, improving credit growth, interest rate cuts, surplus system liquidity, improving rural real wage growth, strong corporate and bank balance sheets, and a favourable base effect. Third, market valuations are now far more palatable than at the start of this year, with the Nifty50 trading at around 19 times the estimated financial year 2027 earnings, which is close to its 10-year historical average.

Do you see headwinds emerging?