Daily Voice | Axis MF’s Ashish Gupta sees 15-16% FY27 earnings growth; flags dark horse sector, 4 themes for 2026

Ashish Gupta is the Chief Investment Officer at Axis Mutual Fund

• Ashish Gupta of Axis MF increased exposure in financials over the last year as these are well-positioned to benefit from expected revival in credit demand and improved liquidity conditions.

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According to Ashish Gupta, the Chief Investment Officer at Axis Mutual Fund, earnings growth and valuations are expected to be the dominant drivers of equity performance in 2026. Financials, autos, and consumption-led sectors are leading the rebound, aided by GST cuts, tax rationalization and liquidity support, he said in an interview to Moneycontrol.

He believes that 15–16% earnings growth for FY27 is achievable, and India’s GDP should hold above 6.5%.

After exceptionally strong primary market activity seen in 2024 and 2025, with nearly 100 IPOs this year alone, a period of cooling off appears likely, though the pipeline of new issues remains substantial and several large IPOs are slated for the first half of this year, he said.

He is of the view that real estate sector could emerge as the dark horse in 2026, while he maintains an overweight stance on consumption, automobile, financials, and healthcare sectors.

Do you believe India will be in a much better position in 2026 than in 2025?

India enters 2026 with a constructive growth narrative, underpinned by proactive policy measures and strengthening domestic fundamentals. Nominal growth is expected to accelerate, driven by consumption and continued investment in infrastructure. The earnings cycle has turned upward, supported by early signs of sustained recovery. This optimism is anchored in coordinated policy actions—rate cuts, CRR reduction, liquidity support, accelerated infrastructure spending, and nearly Rs 1.5 lakh crore in GST reductions aimed at boosting mass consumption.

Adding to the positive backdrop are easing geopolitical tensions with China, progress on anti-involution reforms, and the prospect of an India–US trade agreement, all of which could further lift sentiment.

A lower tax regime and benign inflation have created a goldilocks environment of strong GDP growth and lower inflation prompting the RBI to revise growth forecasts upward. With most of the fiscal consolidation of the past three years behind us, India enters 2026 in a stronger position. As these measures take hold, India is poised not only to maintain its growth trajectory but to emerge as one of the most resilient economic stories globally.

If yes, does this imply that economic growth could exceed 7% and that Nifty earnings could grow by 16–18% this year?

For next year, what makes us more confident is that the market is broadly contributing to earnings growth, and it doesn’t hinge solely on one sector. Growth is being driven by multiple sectors like automobiles, financials, cement, and NBFCs. Even the energy sector is contributing. This diversification reduces concentration risk and makes the outlook more resilient.

We believe that 15–16% earnings growth for FY27 is achievable. If any individual sector faces headwinds, the overall growth trajectory should remain intact. Economic growth is influenced by multiple variables and although the central bank has revised its forecasts upward, we believe India’s GDP should hold above 6.5%.

Are you bullish on the IPO market even in 2026?

After exceptionally strong primary market activity seen in 2024 and 2025, with nearly 100 IPOs this year alone, a period of cooling off appears likely. While the pipeline of new issues remains substantial and several large IPOs are slated for the first half of this year, the market is beginning to show signs of fatigue.

Retail participation has already moderated in 2025 compared to the exuberance seen in 2023–24, and gains from recent listings have softened, suggesting that returns may continue to normalize. Average listing gains fell to 10% in 2025 from 30% in 2024.

The silver lining, however, is that IPO valuations have started to look more reasonable, creating a more attractive entry point for long-term investors. This moderation in pricing, combined with a still-healthy supply of IPOs, could set the stage for selective opportunities rather than broad-based euphoria.

Do you think foreign investors may find it difficult to return to India in 2026 if the US continues to grow at a strong pace, similar to Q3 CY25?

While US growth remains an important factor, the real variable to watch is US treasury yields. In 2025, despite Fed rate cuts of 75 bps, 10-year Treasury yields stayed elevated through most of the year and the dollar index (DXY) did not depreciate as much in the second half. This strength in US assets contributed to foreign portfolio outflows from India as global capital gravitated toward developed markets.

However, India’s macro backdrop is turning favourable: earnings growth is recovering, valuations have moderated, and structural reforms such as GST rationalization and labour code implementation are reinforcing confidence.

Most FIIs remain underweight on India after recent selling, which leaves room for reallocation if earnings delivery stays on track. Additionally, progress on US - India trade deal and the prospect of further Fed easing could help revive sentiment and attract foreign capital over time.

Do you see an AI-like rally in the Indian IT sector in 2026, or do you expect another muted year for the sector?

While AI adoption offers long-term opportunities, its near-term deflationary impact on budgets will likely keep spending subdued, with incremental recovery tied to new AI-driven projects. Many new contracts are being signed at lower revenue realizations, reflecting aggressive pricing. Engagement models are shifting toward outcome-based pricing and platform-led solutions, signaling a structural evolution in client expectations.

BPO players—especially those agile enough to embrace outcome-based models—are positioned to benefit as enterprises prioritize ROI and cost efficiency. Overall, the sector could still face a challenging growth environment in the medium term.

What themes currently carry a bullish outlook for you?

We maintain an overweight stance on consumption. The positive impact of GST rationalization is seen across consumer discretionary companies who have reported strong festive-season sales. We also remain constructive on other consumer discretionary plays—especially in retail, hospitality, and travel & tourism—which are gaining from strengthening domestic momentum.

In automobiles, the trend toward premiumization is expected to strengthen, supported by a pickup in the replacement cycle. Recent consumption numbers and management commentaries suggest that consumption sector has gained post GST rationalization however continuity in revival needs to be seen in coming months.

We have increased exposure in financials over the last year as these are well-positioned to benefit from expected revival in credit demand and improved liquidity conditions. Furthermore, we are overweight Healthcare.

We remain underweight in IT given the cautious environment in the US although rupee depreciation and attractive absolute valuations are enticing, relative valuations vis a vis global peers are still expensive. Additionally, we are positive on structural themes such as renewable capex, power transmission and defense.

Do you expect any game-changing measures in the Union Budget 2026?

While the government lowered direct taxes in the 2025 budget, it has also implemented several meaningful reforms such as GST rationalization and the labour code overhaul outside the Union Budget. These measures have started to deliver tangible benefits—insurance, for instance, has benefited from GST rationalization, while direct tax changes have further supported disposable incomes.

Collectively, these steps signal a clear commitment to fiscal discipline and structural improvement. That said, the bigger challenge lies in allaying concerns around fiscal slippages at both the state and central levels. Sustaining confidence in India’s fiscal trajectory is critical for long-term stability and investor sentiment.

Which sector could emerge as the dark horse in 2026?

The real estate sector has been among the weakest performers this year, weighed down by a moderation in sales. The residential cycle, after three years of robust growth, has seen launches and absorption moderate over the past 18 months. Demand moderation has been broad-based across key cities, reflected in slower new home sales and a cautious buyer sentiment. This cooling trend has led to valuation compression for most developers, even as cash flow generation remains relatively healthy due to prudent inventory management.

Importantly, balance sheets across leading players are stronger than in previous downcycles, providing a cushion against volatility. Looking ahead, the backdrop of a comfortable liquidity environment and lower interest rates could act as a catalyst for recovery.

Do you see the rupee stabilising against the US dollar in 2026, or do you think a move toward 100 cannot be ruled out?

The rupee’s weakness has stemmed from continued foreign portfolio outflows, negative sentiment around the unresolved India–US trade deal, and adverse trade balances. The rupee was also overvalued on REER basis by roughly 3% at the start of the year. Additional factors include large short forward positions and limited room for aggressive FX intervention. Now, after the recent bout of depreciation the rupee is undervalued by around 6%.

A resolution of trade tariffs could improve India’s external balance and lend stability to the currency. Moreover, India’s anticipated inclusion in Bloomberg bond indices could attract strong inflows—estimated at $25–30 billion—providing a significant tailwind for the rupee. Combined with a supportive macro backdrop and undervaluation on a REER basis, these developments position the rupee for a potential recovery over the medium term.

Do you believe earnings growth will be a far more important driver for equity markets than the US–India trade deal in 2026? Do you expect double-digit market gains to continue next year as well?

Earnings growth and valuations are expected to be the dominant drivers of equity performance in 2026. After a muted FY25, consensus expect mid teen EPS growth for FY26–27, supported by policy tailwinds, credit growth, and margin recovery.

Financials, autos, and consumption-led sectors are leading the rebound, aided by GST cuts, tax rationalization and liquidity support. A US–India trade agreement could boost sentiment and help exporters, but its effect is largely incremental and sector-specific. It is not expected to outweigh the fundamental earnings recovery for broad market performance.

Do you see the RBI’s monetary easing cycle pausing, while the new Fed Chair favours a rate-cut cycle in 2026?

RBI has already delivered 150 bps of easing in 2025 through repo and CRR cuts, shifting its stance to neutral. The December policy, which included a 25 bps cut, reinforced a lower for longer environment supported by liquidity measures such as OMOs and FX swaps. With inflation easing and growth improving, we appear to be at the tail end of the rate-cut cycle—further cuts, if any, will be limited.

On the global front, the Fed has trimmed rates thrice in 2025, bringing the funds rate to 3.5–3.75%. Given current macro conditions, I anticipate around two cuts in 2026. The incoming Fed Chair, set to take office in May, faces a divided FOMC where hawkish members resist aggressive easing. While political pressure for lower rates persists, the ultimate path will hinge on inflation trends and labour market dynamics. (Source: Bloomberg, NSE Indices, SEBI, RBI, Axis MF Research as on December 2025)