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 monetary policy tend to benefit that.”
He is also constructive on consumption-led themes. “We have been quite positive post 15th August on the consumer discretionary side and that I think is likely to do well and it typically tends to be slightly longer trend, so at least 26, 27 could be a year for them.”
Manufacturing, which faced headwinds in 2025, could also stage a comeback. While acknowledging near-term dampeners such as US tariff-related issues, Khemani believes these challenges are temporary. “As and when that gets sorted out you could see some sort of pickup happening there… 26 could be a good year for manufacturing oriented play which probably was not so good in 2025.”
Markets move ahead of earnings
On whether markets will wait for earnings delivery or pre-empt the recovery, Khemani stressed that equities typically move ahead of fundamentals. “If you see, market bottomed out in mid of April and from there it has recovered, while the earning meaningfully started recovering only in the Q2. So typically, always market tends to predict and act ahead of the curve.”
He estimates earnings growth of around 14–15% for the year ahead, which, in his view, is sufficient to support higher equity prices. “There are no structural risks around, valuations have come down, interest rates are coming down. So, all those things are auguring, pointing very well in the direction of a good equity market.”
Multi-asset returns may normalise
The past year also saw strong performance from gold and silver, boosting multi-asset strategies. However, Khemani cautioned against extrapolating that trend. “Gold and silver tend to play in sort of spurts… we have seen a very large rally. While I am not a great expert on gold and silver, but from the looks of it, it looks like that lot of large part of it is behind.”
He suggested that if equities deliver stronger returns and metals consolidate, multi-asset funds may not replicate the stellar outcomes seen recently. “25 was a year of poor equity performance and great, stellar metal performance… Now, if one is expecting a good equity year and not so great metals year, then you will not see similar approach or similar kind of outcome there.”
Sticking with quality in financials
Within financials, Khemani remains clear about his preference for larger, well-capitalised players. “As far as the lending is concerned which is a leverage business we have always chosen to stay in the mainstream large companies… because the cost of capital which is the most important aspect in lending business that tends to be the lowest for larger NBFCs… or larger banks.”
Smaller names, according to him, are best approached tactically rather than structurally. “Even if ever we have played a smaller player, it has always been a tactical short-term approach rather than a structural holding.”
