Leading fund managers have sounded alarm bells about 2026, warning that global markets could enter a far more volatile phase with significant spillover risks for Indian equities. Speaking exclusively at the CNBC-TV18 Market Forum, industry experts highlighted concerns ranging from excessive US market valuations to potential widespread multiple compression across global markets.

US Market Complacency Poses Global Risk

Sandeep Tandon, Founder and CIO of Quant Mutual Fund, identified the primary risk as stemming not from India but from growing complacency in developed markets. "Looking back, 2025 was difficult. And I see 2026 as fragile, not only for India but globally," Tandon stated. "The challenge which I see in 2026 is not about India. The worry is about the US market because extraordinary complacency is there."

Tandon made a bold prediction about global valuation reset, declaring: "I am taking a big call that this year belongs to PE contraction globally." He warned that corrections in developed markets could be particularly sharp, driven by excessive valuations that have built up over recent years.

Dollar Strength and Crowded Trades Present Near-Term Risks

A major catalyst for market volatility, according to Tandon, could be a resurgence in the dollar index. Despite acknowledging a longer-term structural downtrend for the dollar, he cautioned about crowded positioning creating vulnerability.

"The biggest risk which I see coming is the rise of the dollar index, because it is a consensus trade among all strategists and economists globally," Tandon explained. "That is the risk which I see, which means a lot of things can correct sharply."

Commodity Correction Warning

The discussion also highlighted near-term risks in commodities, particularly metals, which have experienced strong rallies. While maintaining a long-term bullish stance on commodities, Tandon described recent moves as excessive. "From a near-term perspective, we have seen an extraordinary spike happening, and I think it is a euphoric move," he said. "I will not call it a bubble… but a correction is around the corner."

Mean Reversion Theme Emerges

Taher Badshah, CIO of Invesco Mutual Fund, emphasized the likelihood of mean reversion across multiple market variables after years of linear trends. "2025 has been a unique year in many ways," Badshah noted, pointing out that despite significant rate cuts and strong domestic inflows, markets failed to deliver expected returns.

"Quite a number of things have worked in a very linear manner over the last two or three years, especially after Covid," Badshah observed. "Therefore, it is quite likely that, in many ways, we are set up for mean reversion in many things."

Badshah identified several areas where mean reversion could occur:

• Dollar strength patterns
• Earnings growth trajectories
• India's relative market performance
• Global technology and AI-led trades

Constructive Medium-Term View Despite Challenges

Nilesh Surana, CIO of Mirae Asset Investment Managers (India), offered a more balanced perspective on Indian equities, emphasizing the need to contextualize 2025's weakness. "If you look at the scorecard, the Nifty had ten consecutive years of positive returns, even in the Covid year on a calendar-year basis, which has never happened in the history of any developed market," Surana highlighted.

Surana identified three key headwinds that drove recent corrections and argued all are now easing:

"All three are receding," Surana stated, pointing to income tax cuts, interest rate reductions of 125 basis points, and improving liquidity conditions as supportive factors.

Earnings Recovery Expected

On the earnings front, Surana projected improvement after a prolonged slowdown. "Over the last two years, earnings growth has been in low single digits. We see it moving over the next couple of years to low teens," he explained. "In that context, the view is positive and constructive."

However, he cautioned against expecting quick returns: "If you are looking for steady long-term returns, this is a good market. But if you are looking for quick and easy money, that era which we saw in 2023 and 2024 may rightfully pause here."

Selectivity Key for Navigation

While trade-related uncertainty remains a variable, fund managers broadly agreed that India's long-term fundamentals remain intact. However, as markets transition into a phase driven more by earnings delivery and valuation discipline, selectivity is expected to be crucial for navigating what could prove to be a volatile 2026.

The consensus among fund managers suggests that 2026 will likely be characterized by valuation discipline rather than easy gains, with investors needing to be far more selective in their approach as global market dynamics shift toward mean reversion and multiple compression.

Source: https://www.cnbctv18.com/market/market-outlook-2026-pe-contraction-mean-reversion-indian-equities-fund-managers-exclusive-19820350.htm

Indian equities are displaying selective momentum as third-quarter updates from key sectors highlight diverging performance trends. According to Marketsmith India Head of Equity Mayuresh Joshi, domestic-focused businesses and largecap stocks remain relatively better positioned amid current earnings and policy developments.

Steel Sector Gains Momentum

Tata Steel has emerged as a standout performer in Q3, driven by strong domestic market performance. The company's results reflect the positive impact of recent government policy measures and favorable market conditions.

The steel sector outlook appears constructive, with expectations of improved EBITDA and margin performance. Industry-wide price increases suggest strengthening market dynamics and enhanced pricing power for steel manufacturers.

IT Sector Shows Revival Signs

The information technology sector is witnessing early signs of recovery, with institutional investors returning to largecap IT stocks. This renewed interest comes ahead of earnings announcements, with valuations providing comfort to investors.

The sector's recovery is attributed to enterprises moving from the AI investment phase to actual implementation, creating new revenue opportunities for IT service providers.

Brokerage and Financial Services Face Headwinds

Brokerage and platform stocks are experiencing near-term pressure due to regulatory changes impacting derivatives trading volumes. Angel One has reported softer client additions and reduced trading volumes, reflecting the sector's challenges.

Despite current headwinds, the long-term financialization theme remains intact. Market experts prefer exchange and asset management companies such as:

• MCX (Multi Commodity Exchange)
• HDFC Life Insurance
• Nippon India Asset Management Company

These companies are favored for their operating leverage potential and structural growth opportunities.

Consumer and Pharmaceutical Sector Outlook

In the consumer segment, discretionary stocks are preferred over durables. While copper prices have increased, inventory buffers are expected to protect margins in the near term. LG Electronics remains a structural investment opportunity, though clearer earnings visibility is recommended before taking positions.

The pharmaceutical sector presents selective opportunities despite persistent regulatory risks. Pipeline strength remains a key differentiator, with Cipla being monitored for its respiratory drug pipeline. Torrent Pharmaceuticals is preferred for earnings stability, while Sun Pharma continues to be tracked for potential opportunities.

Market Outlook

The current market environment is expected to remain stock-specific, with opportunities emerging in metals, select banking and financial services names, and information technology. However, platform businesses and high-competition consumer segments require cautious approach in the near term. This selective momentum reflects the varied impact of earnings updates and policy changes across different sectors of the Indian equity market.