The market is heading into FY 26 in the midst of global uncertainty and volatility. Therefore, "domestic facing sectors would be lesser prone to the global uncertainty driven risks and external driven sectors are better to avoid," said Ajit Banerjee President and Chief Investment Officer at Shriram Life Insurance in an interview to Moneycontrol.
He believes apart from rate sensitive sectors that will get benefitted by the likely repo rate cuts, speciality chemicals, renewables, pharma, healthcare segments can be considered for investing.
According to him, consumption stocks will take still some more time for recovery. "Whilst there is improvement visible in rural consumption levels aided by better than normal rainfall received last year, good Rabi crop sowing, increase in MSP prices announced by government but the urban consumption isn’t showing encouraging trends yet," he reasoned.
What do you expect from the RBI policy, apart from a likely rate cut?
RBI, through its actions, measures and periodic statements, have made it amply clear that focussing on boosting economic growth is their priority, though they aren’t letting off their vigil on CPI levels. Therefore, we expect that the Reserve Bank of India is likely to continue lowering the repo rate to support economic growth, as inflation remains within target range. RBI would also ensure that the system is not starved of durable liquidity so that the transmission of the rate cuts happens to the ultimate consumers. Further, given the concerns emanating from global growth slowdown and US economic conditions, this accommodative monetary policy stance.
The focus of the Government and RBI at this point of time is more directed towards the revival of the domestic economy so that the growth momentum is restored. Therefore, we can continue to see more OMOs (open market operations), Forex Swaps, and VRRs (Variable Rate Repo) getting announced regularly. Some reports are suggesting even lowering of reverse repo rate as well going forward, primarily to make available additional liquidity in the market.
Even after a robust rally of nearly 8% from the March low, do you still think it is too early to say that the market has reached a bottom?
With most negatives already priced in and signs of economic growth momentum returning, foreign investors began buying Indian equities in the cash segment last week. It can probably be said that, going forward, the downside movement of the market may be limited from here. However, with so much external volatility prevailing and new ones emerging, none can perhaps say with certainty that markets have bottomed out. Our Central Government is trying to negotiate a trade and tariff agreement with the US Government so that the adverse impact can be minimal.
The good news is that the domestic economy is showing signs of recovery, inflation remains under RBI’s comfort zone, monetary policies have turned more pro-growth supportive, liquidity has eased up significantly, and rural recovery is encouraging. These are positives for the domestic markets. Having said that, the pain remains in the urban consumption, which may take more time for revival. With the Q4 earning expectation much more tepid this time, we don’t expect any significant corrections in market levels post announcements of Q4 results for FY 25. The market believes that most of the negatives about the Indian stock market are discounted. Investors are focusing on earnings revival from Q1FY26 onward.
Do you see strong reasons to buy consumption stocks now?
We feel consumption stocks will take still some more time for recovery. Whilst there is improvement visible in rural consumption levels aided by better than normal rainfall received last year, good Rabi crop sowing, and an increase in MSP prices announced by the Government, the urban consumption isn’t showing encouraging trends yet.
If India receives a good monsoon this year and there isn’t any drought-like situation or prolonged heat spell prevailing, then the kharif harvest will be good, which will lead to continuity in rural consumption. For urban consumption to revive, a lot will depend on the availability of cheap credit in the market, the release of additional disposal income and lower inflation levels. Within consumption space, discretionary consumption will take off first once these favourable conditions starts to play out is our take.
Which sectors are you bullish on, and do you foresee healthy earnings growth in those sectors in FY26?
As we enter FY26 amid global uncertainty and volatility, domestic-facing sectors are likely to be less exposed to global risk, making externally driven sectors less favorable.
The RBI has begun cutting repo rates, shifting its policy focus toward economic growth. To ensure the effective transmission of these rate cuts, the central bank is also injecting durable liquidity into the system. This is expected to benefit rate-sensitive sectors such as banks, NBFCs, real estate, consumer durables, discretionary consumption, and housing-related construction materials.
Additionally, sectors like specialty chemicals, renewables, pharma, and healthcare present attractive investment opportunities. The government’s strong push for railway infrastructure development is expected to benefit companies in this space.
India has also emerged as a key exporter of defense equipment, with shipments reaching multiple geographies. With Europe significantly increasing its defense allocations, Indian defense manufacturers stand to gain from new opportunities in the sector.
Which sectors are still showing weakness?
Export-oriented sectors are likely to face significant tariff and geopolitical headwinds in the coming quarters until a broader global consensus is reached.
The metals sector may come under pressure due to China’s excess capacity and export restrictions, leading to pricing challenges. Despite government efforts to support the industry through safeguard duties, weakness in the sector is expected.
The auto sector—including passenger vehicles (PVs), commercial vehicles (CVs), and two-wheelers—will likely continue to face challenges. However, the anticipated availability of cheaper credit could provide some support to its growth in FY26.
Meanwhile, the IT sector remains uncertain due to economic headwinds in the U.S. and Europe, warranting a cautious approach for now.
Are you convinced that the IT sector has not fully bottomed out yet?
India's IT index has declined 15.3% year-to-date and is on track for its worst quarter since June 2022. Leading IT firms have lost between 11.2% and 18.1% this year.
Analysts tracking the sector believe a recovery in FY26 is unlikely, especially after global IT leader Accenture flagged that discretionary spending remains constrained, signaling continued weak demand.
Rising global trade tensions, fresh U.S. tariffs, and the risk of slowing growth with higher inflation—raising fears of stagflation—have added further uncertainty for Indian IT firms. Additionally, the sector faces potential headwinds from the early stages of Gen AI adoption, which could create further challenges in the near term.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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