After a year marked by consolidation, uneven sectoral performance and muted benchmark returns, veteran market participant Vikas Khemani from Carnelian Asset Management believes the groundwork is being laid for a more constructive phase for Indian equities. In a detailed interaction with ET Now, Khemani outlined why the coming year could mark a shift, with earnings growth, valuation comfort and policy support converging to improve the market outlook.

For much of the year gone by, India’s benchmark indices failed to generate meaningful returns, while even pockets of the broader market lagged. This, however, is not unusual, Khemani argues.

“I think that always happens every couple of years in the market. It is nothing new. If you go back to your memory, in 2022 we had a very much similar situation. 21 was a great year and 22 index was more or less struggling and towards the end it picked up and very much similar sentiment was there and then we had a great 23 and 24 and 25 was a tepid year.”

According to him, the current phase resembles a classic consolidation period rather than a structural breakdown. “Fast forward, we are sitting on a year of consolidation, year of lot of macro positive developments,” he said, pointing to a series of supportive measures over the past 12 months. These include monetary easing by the Reserve Bank of India through rate cuts and liquidity infusion, alongside fiscal stimulus from the government in the form of income tax and GST cuts.

“These are obviously macro factor which tends to impact the growth with a little bit of a lag and that is what I think 26 is likely to happen,” Khemani noted. He added that earnings growth has already begun to pick up and should strengthen further. “We have already seen a good pick up in the earning growth which I guess only will get better from here.”

What adds to his confidence is the valuation and relative performance backdrop. “We are sitting on a market which has done nothing. Earnings have grown. It is not that they have grown negatively. We are sitting on a market where India has underperformed significantly emerging market this year… Valuations have come in a reasonably good sort of range. Interest rates are looking down. So, all positives are factored in and I do believe that 2026 would be better year than 2025.”

Where will profit pools emerge?
As markets transition into the new year, Khemani sees clear sectoral opportunities. Banking and financial services remain a core conviction. “Definitely banking and financial services would do well. The whole pack we have been quite positive and we will continue to remain quite positive on that. The tend to benefit that.”