NewsStocksValuation Reset Lays Foundation for Healthier Market Phase in 2026, Says Trust MF CIOValuation Reset Lays Foundation for Healthier Market Phase in 2026, Says Trust MF CIO
Trust MF CIO Mihir Vora views 2025 as a necessary consolidation year with valuation corrections now complete, setting the stage for potential 2026 outperformance. Key factors include sustainability of tax cuts boosting consumer demand, US trade deal progress, and return of foreign investor focus to India's structural strengths. He expects December quarter earnings upgrades and sees strong potential for midcap-smallcap outperformance given favorable growth-valuation dynamics.
*this image is generated using AI for illustrative purposes only.
As the third-quarter earnings season begins to unfold, market participants are increasingly focused on whether this phase could mark an inflection point after what many have described as a year of reset for equities. Mihir Vora, Chief Investment Officer at Trust Mutual Fund, shared his perspective on why 2025 has largely been a year of consolidation and what could shape market performance as India heads into 2026.
Market Consolidation and Valuation Reset Complete
Vora pointed out that markets are entering the new year after a meaningful breather, with significant valuation corrections already playing out. The current market performance tells a story of necessary adjustment:
| Market Segment | 2025 Performance | Status |
|---|---|---|
| Nifty Returns | ~10% | Positive but modest |
| Broader Markets | Flat to negative | Correction phase |
| Valuation Concerns | Behind us | Reset complete |
| EM Performance | Underperformed | Including vs China |
According to Vora, many of the concerns around stretched valuations are now behind the market. India has also underperformed most emerging markets, including China, as well as developed markets after several years, suggesting that the market has completed its cooling-off phase.
Key Factors Shaping 2026 Trajectory
Looking ahead, Vora highlighted several critical variables that could define market performance in 2026. A key factor will be whether recent income tax and GST cuts translate into sustained consumer sentiment and demand recovery. While early signs of improvement were visible in October and November, he emphasized that continuity into the first quarter of 2026 will be critical for sustained momentum.
Another important trigger is progress on trade deals with the US. Vora cautioned that while export diversion may mathematically soften long-term impact, prolonged delays could hurt small businesses and more importantly, dampen foreign investor sentiment. From an FII portfolio perspective, prolonged uncertainty could delay the return of foreign flows.
Structural Strengths Regaining Focus
Vora observed that India lost some global investor attention amid intense hype around global technology stocks. With that hype now moderating, he believes India's structural strengths could come back into focus:
- Steady economic growth trajectory
- Robust domestic demand fundamentals
- Continued policy support framework
- Alignment between government and RBI on growth stimulus
- Pro-growth policies including PLI and Atmanirbhar Bharat initiatives
Earnings Outlook and Sector Performance
On the earnings front, Vora expects the December quarter to deliver more upgrades than downgrades. While not all banks are reporting strong numbers, several midcap banks and NBFCs have posted healthy results. Consumption has seen a boost due to GST cuts and seasonal demand patterns.
| Sector Category | Expected Performance | Key Drivers |
|---|---|---|
| Discretionary Companies | Solid numbers | GST cuts, seasonal demand |
| Auto Manufacturers | Strong results | Consumer recovery |
| Select Banks & NBFCs | Healthy performance | Midcap strength |
| Commodities | Earnings upgrades | Continued strength |
Midcap and Smallcap Opportunities
Vora sees a strong case for potential midcap and smallcap outperformance in 2026. He cited greater scope for stock picking, the tendency for newer high-growth segments to emerge in the mid and smallcap space, and the sheer breadth of opportunities with hundreds of companies having meaningful market capitalization. With consensus earnings growth for mid and smallcaps slightly higher than largecaps over the next few years, the growth-versus-valuation equation looks favorable after recent corrections.
Sector-Specific Outlook
Vora reiterated his long-standing positive view on defence, noting recent government activity including order acceleration and increased acceptance of necessity. Geopolitical uncertainties from Ukraine to Venezuela and Taiwan are expanding export opportunities. He sees defence as a long-term secular story driven by domestic manufacturing and exports across land, air, and naval segments.
On IT services, Vora struck a more cautious note, particularly on largecap companies. He believes currency depreciation offers only short-term benefits, as pricing adjustments eventually offset margin gains. With most large IT firms guiding for single-digit growth, his exposure remains stock-specific within midcaps while staying underweight on largecap IT.
For domestic growth and consumption themes, Vora highlighted exposure to financials and autos, along with select gold-linked opportunities through NBFCs and jewellery manufacturers. His manufacturing approach has become more selective, focusing increasingly on suppliers rather than end producers, including capital goods, transmission and distribution, and data centre supply chain components.
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