'High-quality growth stocks better valued vis-à-vis rest of market'

Valuations, which have eased over the course of 2025, are likely to soften further as the time correction continues, and earnings growth is expected to pick up, says Vinay Paharia, chief investment officer, PGIM India Mutual Fund (formerly PGIM India Asset Management). In an email interview with Abhishek Kumar, Paharia highlights that sectors like health care, telecommunications (telecom), consumer discretionary, private banking, and non-banking financial companies (NBFCs) currently appear attractive.

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Edited excerpts:

What is your equity market outlook for 2026, and what are the key triggers to watch out for?

■ Several triggers warrant attention. First is the global artificial intelligence (AI) rally. Any reversal in the Al trade is likely to have a positive rub-off on India. The narrowing USJapan rate gap, following the Bank of Japan’s rate hike, raises the possibility of a yen carry trade unwind, which could influence global liquidity flows. Domestically, heavy primary market activity may cap secondary market gains, while progress on a US-India trade agreement remains a key monitorable after acting as a drag in 2025.

On fundamentals, earnings growth is expected to rebound sharply after two muted years for Nifty companies. With easing downgrades, improving domestic demand, and policy support, India is likely to remain among the fastest-growing markets globally. We expect some time correction in 2026, which could make valuations and future return potential more attractive.

Do current valuations leave room for meaningful upside, or will returns in 2026 be largely earnings-driven?