Daily Voice: 2026 should be exciting for Indian equities, earnings likely to rebound to double-digits in FY27, says Kotak's Nilesh Shah

Nilesh Shah is the MD of Kotak Mahindra AMC

Nilesh Shah, the MD of Kotak Mahindra AMC believes the 2026 should be an exciting year for Indian equities, with earnings likely rebounding to double-digits in FY27, supporting market liquidity.

Market returns could be high single digit or low double-digit over the medium term, he said in an interview to Moneycontrol.

According to him, FII flows are likely to return in 2026 as global rate cycles ease, US growth softens, and doubts grow around overhyped AI trades elsewhere.

Nilesh Shah, who feels the AI-led rally globally may moderate, advised focussing on sectors with structural tailwinds in India for 2026 - financials, consumer discretionary, capital goods and infrastructure, IT, defence, and chemicals.

As we look ahead to 2026, the Indian economy appears poised for a steady innings after a challenging 2025, much like a Test match where patience and solid fundamentals pay off in the longer run.

Our productivity and inflation is poorer than our trade partners and hence the destiny of the rupee is to depreciate. Fundamentally, the rupee with large foreign exchange reserves, manageable gap in balance of payment should stabilise with low single-digit depreciation annually. In the recent time, the rupee is facing pressure due to market expectations that large short forward position will result into sharp depreciation.

The recent passage of the bill allowing 100% FDI in insurance is positive. However, immediate and significant foreign investments may not flood in right away—global players will take time to set up partnerships and navigate regulations. That said, over the medium term, this opens doors for deeper capital, better products, and enhanced competition, strengthening the sector gradually.

Regarding further stimulus in the Union Budget 2026, the government has already provided support through income tax and GST rate cuts, interest rate cut and gaming ban and other reforms this year. I don’t anticipate major new fiscal impulses, as prudence remains key amid global uncertainties.

I really wish this budget provides for 8th pay commission implementations and funds the same through out of box ideas like gold monetisation or strategic divestment.

For investors in 2026, focus on sectors with structural tailwinds: financials (especially large banks and NBFC), consumer discretionary (autos, travel, hospitality), capital goods and infrastructure, IT (leveraging AI for efficiency), defence, and select manufacturing plays like chemicals. Midcaps could outperform marginally, but stock selection is crucial in this valuation-conscious environment.

Yes, 2026 should be an exciting year for Indian equities, with earnings likely rebounding to double-digits in FY27, supporting market liquidity. We could see returns in high single digit or low double-digit over the medium term, driven by domestic flows and improving corporate profitability, though volatility from global events remains a factor.

The AI-led rally globally may moderate, but in India, even without many pure-play AI companies, sectors like IT are increasingly adopting AI to deliver better solutions—cheaper, faster, and smarter. This enterprise AI adoption should sustain momentum for related stocks.

FII flows are likely to return in 2026 as global rate cycles ease, US growth softens, and doubts grow around overhyped AI trades elsewhere. Improving Indian earnings and reasonable valuations will attract them back, rather than waiting solely for those triggers.

Both the RBI and US Fed are in easing mode, but the cycle may be shallow. The Fed could cut more aggressively, while RBI remains data-dependent, with room for measured reductions if inflation stays comfortable. Continued cuts into 2026 seem probable, supporting growth without overheating.

Overall, like building a strong partnership in cricket, India’s structural story—demographics, digitalisation, and reforms—remains intact. Stay invested with discipline, focus on quality, and 2026 could deliver rewarding runs.