Edited excerpts from a chat:

Following a year of underperformance, how comfortable are you with valuations in the Indian equity market now?

Over the past year, equity markets experienced a sharp correction followed by a rebound. At their peak, indices were driven by euphoric sentiment and aggressive buying from both FIIs and DIIs, resulting in elevated valuations. The subsequent decline helped moderate these valuations, particularly in the large-cap space, where growth has now slowed and valuations appear more reasonable. In contrast, segments such as defence, power capex, tourism, and electronics manufacturing services (EMS) continue to show strong growth, but valuations remain stretched. These themes are more prominently represented in the mid- and small-cap segments. As a result, investors may consider maintaining diversified exposure across market capitalizations.

We believe markets could remain rangebound in the near term. In such an environment, alpha generation will depend heavily on stock selection. Notably, approximately 35% of stocks are trading above their levels since a year ago, when the market was at its peak, highlighting the importance of being selective.

The market is expecting earnings recovery in H2 of FY26. What are your expectations and which pockets of the market do you think will be the ones to recover the fastest?

The pace of EPS downgrades has moderated in recent months, though Q2FY26 may see further revisions due to the current weak demand environment. However, going forward, we anticipate a period of stable earnings following significant downgrades over the past 12–15 months. Over the next few quarters, we expect earnings growth to be fairly broad based. A stable supportive macro environment, lower policy rates and income tax coupled with GST cuts could help market recover. Given the current scenario, we believe that financials, consumption related sectors and power etc could be the sectors which could see recovery in growth.

How are you positioning portfolios given the sharp run-in auto and consumption stocks post-GST cuts?

Following the GST rationalization, the trend toward premiumization is expected to strengthen, supported by a pickup in the replacement cycle. GST cuts are likely to reduce passenger vehicle (PV) prices by 5–10% and two-wheeler prices by around 8%, which should stimulate demand. We anticipate that aspirational product segments will benefit more due to higher demand elasticity. While improved affordability will encourage first-time buyers, we believe the revival in replacement demand—muted in recent years—will be a more significant growth driver for PVs. Over the medium term, growth prospects through FY28E could be further supported by the implementation of the Pay Commission and gradual benefits from income tax reductions.

In the consumer durables space, the reduction in GST from 28% to 18% for room air conditioners, large-screen TVs, and dishwashers brings these products in line with other home appliances. However, the impact may not be immediate, as consumers are likely to stagger purchases based on income levels and necessity. Meanwhile, the Auto Index has already rebounded to its 2024 peak, rising nearly 30% since April 2025. Consumer durable stocks have also rallied. The sustainability of this momentum will depend on actual volume growth during the festive season, its continuation thereafter, and the margin outlook for the remainder of the year.

Multi-asset allocation funds have grown in popularity due to the rise of gold and silver. What would be your advice for investors looking to understand whether they should invest in gold-silver ETFs or leave the asset allocation job via a multi-asset allocation fund?

For most investors, multi-asset allocation funds offer a convenient, all-in-one investment solution. These funds provide diversified exposure across asset classes—including gold and silver—while benefiting from professional management and dynamic rebalancing. Fund managers can adjust allocations based on market conditions, valuations, and macro trends, which adds valuable flexibility in volatile environments.On the other hand, gold and silver ETFs offer direct exposure to the price movements of these precious metals. They are well-suited for investors who want to take a focused position in gold or silver, particularly as a hedge against inflation or geopolitical uncertainty. There’s no one-size-fits-all approach. As a fund house, we encourage investors to adopt a disciplined asset allocation strategy. In addition to domestic diversification, we also recommend considering exposure to foreign equities to enhance portfolio resilience and capture global growth opportunities.

Do you think 2026 could be the year of mean reversion when Nifty will outperform precious metals?

Nifty’s earnings growth and sectoral rotation (especially into banks, telecom, and chemicals) suggest potential for outperformance versus precious metals, which are entering a consolidation phase. Precious metals may still rally and could benefit from rupee depreciation, but the rate of return could normalize, making equities more attractive from a risk-reward perspective. Furthermore. India’s PE premium to the emerging markets remains below the 10-year average, but recovery in domestic economy can trigger EPS upgrades and rerating, driving relative outperformance.

Given a number of factors like GST, monetary easing, income tax rate cuts and low inflationary pressure, consumption has now become a consensus trade on Dalal Street? How bullish are you and do you think we are at the start of a multi-year cycle for autos and consumer plays?

GST reductions are expected to directly support earnings by driving higher volume growth—thanks to price elasticity from benefit pass-through—and by improving profit margins for companies with pricing power. However, the broader impact will depend on the cumulative effect of multiple factors: the implementation of the Pay Commission, gradual benefits from income tax and GST cuts, and potentially lower policy rates. Overall, India continues to be a compelling long-term domestic consumption story. We believe the cycle for auto and consumption stocks is poised to gain momentum, supported by structural tailwinds and improving affordability

Tell us which other sectors you are betting on and why?

Against the backdrop of lower interest rates, expected GST rationalisation, and a likely boost in consumption, we continue to maintain an overweight stance on the consumption theme. If these macro tailwinds are effectively passed on to end consumers, they could reset India’s consumption cycle. For instance, benefits in sectors like cement and building materials could enhance housing affordability, which in turn may stimulate the credit cycle. This underpins our overweight position in the financial sector, particularly NBFCs, which are well-positioned to benefit from increased credit demand and improved liquidity conditions.

We also remain constructive on consumer discretionary plays—especially in retail, hospitality, and travel & tourism—which are poised to gain from strengthening domestic momentum and festive season demand. Our GDP numbers validate our stance. We have exposure to select automobiles and we retain an overweight in pharmaceuticals despite some pricing headwinds in the US. We remain underweight in IT. Additionally, we are positive on structural themes such as renewable capex, power transmission, and defense. Overall, India continues to offer a compelling medium- to long-term growth opportunity, supported by resilient domestic demand, a favorable rural outlook post-monsoon, and supportive macroeconomic indicators.

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