Mahesh Nandurkar, Head – India Research & India Equity Strategist, Jefferies said the experience of 2025 and the past 15 months has reminded investors of the need to spread exposure across asset classes and geographies.
“What the year 2025 did, or basically the last 15 months or so, just taught us the importance of asset class diversification. The prior three or four years, or maybe five years, it was just a one-way street. It was just one asset class that mattered, which was obviously equities. But we have just learned the importance of diversification,” he said. He added that diversification should not be limited to equities, debt and commodities, but should also include access to international capital markets. “Thankfully, now in India, we have access to a variety of international capital market access products offered by various mutual funds. We are also seeing GIFT City being made operational to that extent. It was always known and always talked about, but people just forgot about asset diversification in the previous four years. We are reminded of that once again,” Nandurkar said.
He said the Union Budget has gradually become less of a market-moving event, as reforms and policy measures are increasingly announced outside the annual exercise. According to him, investor anxiety around budget day has reduced for the right reasons, particularly after the implementation of GST, which has brought clarity to indirect taxation.
“I remember 10 or 20 years ago, people would sit with pen and paper and go through long lists of excise duties on various products and commodities. Thankfully, with GST, that part is literally out of the equation,” he said. For a fast-growing economy, frequent uncertainty around product-wise taxation is no longer necessary, he added. “For a country like India with a GDP of around $4 trillion and growing strongly, we do not need this hanging sword every year about what will happen to taxation on different products. In a way, it is a welcome change that the budget has become less of an event in terms of taxation changes,” Nandurkar said.
Commenting on the latest budget, he described it as pragmatic, with a calibrated approach to fiscal consolidation. He pointed out that while the government had been reducing the fiscal deficit by 40 to 50 basis points annually over the past few years, this time the pace has slowed to about 10 basis points, from 4.4% this year to a target of 4.3% next year. “That is a welcome change given low nominal GDP growth and low inflation. Although this means tighter fiscal consolidation in later years, for now it provides flexibility,” he said. He added that the additional fiscal space is being deployed productively. “The good news is that the incremental fiscal flexibility has been used to fund incremental capex. We have seen higher allocations for roads, railways and defence. That puts the economy in good stead,” he said.
Nandurkar acknowledged that some sections of the market were disappointed by the absence of capital gains tax relief and by incremental taxation in the form of STT, but said that in the broader context it remained a balanced and pragmatic budget.Looking ahead, Nandurkar said corporate earnings would be the key driver for markets, with growth expected to improve materially after a weak year. He said corporate EPS growth in FY26 is tracking at around 7% to 8%, reflecting several temporary headwinds that are likely to reverse.
“My sense is that this depressed growth is attributable to various factors that are likely to reverse next year. We are looking at a much stronger 12% to 14% EPS growth next year,” he said. He cited three major drivers for the improvement: higher nominal growth due to rising inflation, stabilising interest rates benefiting banks, and the sectoral impact of monsoon patterns.
He said FY27 inflation is expected to move well above 4%, which would lift nominal growth and support earnings.
“Ultimately, what matters is cash in hand,” he said, adding that real growth metrics are rarely the focus for investors. He also said the end of the rate cut cycle should help banking sector profitability after margins were hit by 125 basis points of rate cuts over the past year. With banks accounting for a large share of market indices, this could provide a meaningful boost to overall earnings growth. On monsoons, Nandurkar said a supernormal monsoon can actually hurt several listed sectors such as power, construction, cement, steel, soft drinks and air-conditioning, while a more normal or even slightly weaker monsoon can be supportive for corporate earnings. With some early forecasts pointing to possible El Nino conditions, he said this may not be positive for rural incomes but could be constructive for corporate EPS growth. “So yes, I am quite optimistic on corporate EPS growth improving materially next year,” he said.
