NewsStocksIndian Equity Markets Stuck in Holding Pattern as Earnings and Trade Clarity Remain Elusive: Harsha UpadhyayaIndian Equity Markets Stuck in Holding Pattern as Earnings and Trade Clarity Remain Elusive: Harsha Upadhyaya
Indian equity markets remain range-bound in early 2026 due to uncertainty around earnings visibility and trade developments, according to Harsha Upadhyaya of Kotak Mahindra AMC. While expensive valuations persist across broader markets, he expects moderate recovery in 2026 earnings growth after consolidation. IT sector likely to lag market earnings growth, while financials present relative bright spot with improving fundamentals and reasonable valuations.
*this image is generated using AI for illustrative purposes only.
Indian equity markets have begun 2026 on a subdued note, increasingly decoupling from global peers as investors navigate uncertainty around earnings visibility and trade-related developments. Despite pockets of optimism around macro growth and policy stability, market sentiment remains cautious amid the absence of clear catalysts.
Speaking to ET Now, Harsha Upadhyaya, CIO at Kotak Mahindra AMC, acknowledged that the current phase reflects hesitation rather than outright pessimism. The lack of strong triggers from either earnings or geopolitical developments has kept indices range-bound, with markets waiting for decisive clarity on multiple fronts.
Valuation Concerns Persist Across Market Segments
Upadhyaya highlighted the combination of factors weighing on market sentiment, noting that expensive valuations remain a key concern. "Clearly, both of those factors, the impending trade deal as well as the earnings scenario, which has not really turned around in a big way as yet, are keeping markets at a particular range," he explained.
| Market Segment | Valuation Status | Outlook |
|---|---|---|
| Large Caps | Corrected to some extent | Improving |
| Select Mid Caps | Corrected to some extent | Mixed |
| Broader Market | Still expensive | Challenging |
| Small Caps | Expensive | Awaiting earnings pickup |
The CIO emphasized that without decisive improvement in earnings growth, particularly in the smallcap segment, broad-based market positivity remains elusive. "Until and unless the sentiment turns or there is a real pickup in terms of the earnings growth trajectory for small caps, we may not see all-around positiveness in the market," he stated.
Moderate Recovery Expected for 2026
Despite near-term challenges, Upadhyaya maintains a cautiously optimistic medium-term outlook. He expects moderate recovery in earnings growth for 2026, supported by the market's consolidation phase over the past one-and-a-half years. "For 2026, we do expect a moderate recovery in earnings growth, and given the fact that we have already seen a consolidation for almost about one-and-a-half years, we do believe that 2026 returns will be moderately better than 2025," he noted.
While GDP growth remains supportive, recent quarters have witnessed deceleration in earnings trajectory. Although downgrade cycles appear largely complete, the market has yet to see meaningful upgrades, with Q3 earnings expected to show sequential improvement over Q2 without providing sufficient momentum for material sentiment shift.
Sector-Specific Outlook and Performance Expectations
Upadhyaya provided detailed insights into sector-specific performance expectations, highlighting divergent trends across industries.
Information Technology: The IT sector, traditionally viewed as a bellwether for global demand, has delivered results largely in line with expectations. However, Upadhyaya maintains an underweight stance, noting that "when you look at the expectations for the rest of financial year 26 and financial year 27, this sector is likely to lag average market earnings growth." He views IT as a defensive allocation with steady cash flows but limited upside potential.
Financial Services: Financials emerge as a relative bright spot in Upadhyaya's assessment, particularly over a one-to-two-year horizon. While NBFCs and public sector banks outperformed in 2025, large private banks lagged despite improving business fundamentals.
| Financial Segment | 2025 Performance | Outlook |
|---|---|---|
| NBFCs | Outperformed | Positive |
| Public Sector Banks | Outperformed | Stable |
| Large Private Banks | Lagged | Improving fundamentals |
| Broader Financials | Mixed | Stronger growth expected |
"We have seen most of the cost pressures that came through because of the repo rate cut probably behind us. We should also expect credit growth improvement over the next few quarters," Upadhyaya explained, noting contained asset quality concerns and reasonable valuations after underperformance.
Domestic Sectors: For Q3 earnings, Upadhyaya anticipates strength from domestically driven segments including telecom, automobiles, cement, and oil marketing companies. Metals may see improvement in later quarters rather than immediate gains, while globally linked sectors could continue lagging.
Budget Expectations and Fiscal Constraints
With the Union Budget approaching, Upadhyaya maintains tempered expectations regarding major policy announcements. He highlighted that while real GDP growth has improved, low inflation has capped nominal GDP growth, limiting fiscal flexibility for aggressive spending measures.
"It is very unlikely that you will see a very large increase in terms of capital spend," he noted, though a 10.00-11.00% rise in capex would remain healthy given the higher base. The government is expected to balance capital expenditure with consumption support measures, including refinements to PLI schemes, while major taxation changes appear unlikely.
Markets currently remain in a waiting phase, caught between improving medium-term fundamentals and lack of immediate catalysts. Until clarity emerges on earnings upgrades or trade developments, range-bound movements may continue defining the current market phase, with any recovery expected to be moderate rather than resembling the bull run witnessed between 2020 and 2024.
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