Daily Voice: Himanshu Kohli favours financials, telecom, consumer discretionary for 2026; tariff deal timeline unclear

Himanshu Kohli is the Co-founder of Client Associates

Given that the US-India tariff deal is still under negotiations with no clear timelines, Himanshu Kohli, Co-founder of Client Associates, continues to prefer domestically-focused sectors for 2026.

He remains constructive on financials, which have been among the top-performing sectors this year. "Consumer Discretionary sector is another overweight for us with the sector likely to benefit from a boost in demand on the back of income tax and lagged effect of GST cuts announced earlier in the year," said Kohli, who also likes telecom.

Meanwhile, after three rate cuts by the US Federal Reserve in 2025, he is of the view that there is a likelihood of two rate cuts in 2026 itself on the back of US growth uncertainty, cooling labour market, softening inflation, and impending change in FOMC composition next year.

India’s equity market has witnessed a sharp underperformance in 2025 compared to peers, driven by weak earnings delivery, elevated valuations at the start of 2025, tight liquidity conditions and persistent FII outflows. There has been a frontloading of fiscal and monetary stimulus in 2026, which includes income tax cuts, GST rationalisation, and a slew of easing measures from the central bank (rate cuts, bank deregulation, improved liquidity) to promote growth.

Secondly, the valuations are also more reasonable about longer period averages for MSCI EM, Asia ex-Japan and the index itself. Thirdly, green shoots to earnings were seen in Q2FY26, which reflects a bottoming out and trend reversal. The strong results by Mid and small-cap stocks indicate a broadening of the earnings base. Forward earnings expectations for the next two years are robust, with mid-teen growth anticipated for Nifty-50.

Fourthly, foreign ownership is close to multi-decade lows and may reverse contingent on a turnaround in growth and earnings. Lastly, the macro backdrop remains favourable with inflation and interest rates trending lower, ongoing fiscal support, a multi-year capex cycle, rising credit growth, and visible consumption recovery.

Any positive development on the US trade deal could act as a catalyst to trigger a reversal in sentiment for Indian equity markets in 2026. Broader markets tend to do well in periods of improving growth, higher earnings momentum, and supportive liquidity.

Yes, earnings momentum is clearly improving, particularly within the broader market. While Nifty-50 earnings growth was modest in Q2FY26, Nifty-500 delivered strong double-digit PAT growth of 15%, the best in five quarters. The revival in capex, consumption, and credit growth has led to this strong outcome.

We expect Nifty earnings to grow at high single digits in FY26 and accelerate to mid-teens growth over FY27-FY28. This trend is supported by strong macro fundamentals, robust GDP growth, Fiscal and Monetary policy support, and a benign inflationary environment. Since equity markets ultimately track earnings over time, we believe this improving trajectory sets the stage for a broader-based market performance ahead.

The Federal Reserve, in its recent policy meeting, delivered another 25-bp rate cut, bringing the cumulative easing to 175 bps since September last year. The Fed dot plot suggests two more rate cuts, one each in 2026 and 2027, with the longer run rate remaining at 3%.

In our view, there is a likelihood of two rate cuts in 2026 itself on the back of US growth uncertainty, cooling labour market, softening inflation, and impending change in FOMC composition next year.

Precious metals had a breakout year in 2025, with Gold and Silver delivering 59% and 73% YTD return as of November. The outlook for Silver remains robust, supported by rising industrial demand, especially from green-economy sectors such as EVs and solar PV panels, which now make up about 60% of silver consumption. With EV adoption rising rapidly, automotive demand for silver could potentially triple by 2030. Additionally, the silver supply has been structurally weak for the last 5 years and has not kept pace with the rising demand, contributing to the formation of a price floor and creating upward pressure on price.

Gold also retains a supportive backdrop driven by geopolitical risks, sustained EM central bank buying, long-term inflation expectations, and softer USD. It hit a peak of $4,356 per troy ounce in October before a pullback in November. Some institutional estimates foresee gold potentially reaching $4,800 by end-2026, reflecting a continued structural trend.

While gold and silver have seen stellar performance in recent years and continue to be supported by structural drivers, all allocation decisions should be considered within a broader asset-allocation framework from a diversification perspective aligned with the investor’s overall portfolio objectives. History has shown that phases of strong performance can be followed by periods of pullbacks or sideways movements.

Headline CPI Inflation inched up marginally to 0.71% in November from a record low of 0.25% in October, owing to the waning base effect, GST cut impact on 60% of the CPI basket, and narrowing deflation in the food basket. However, Core Inflation remained elevated at 4.4% driven primarily by a surge in the price of precious metals (Ex-precious metals, Core Inflation at 2.5%).

We expect inflation to pick up in H1 FY27 and move towards the RBI medium-term target of 4% as food price deflation reverses, favourable base effect starts to normalise, and crude prices remain broadly range-bound. However, upside risks could emerge if aggregate demand picks up due to the significant monetary and fiscal stimulus provided thus far.

Portfolio positioning should align with India’s structural growth drivers, focusing on sectors benefiting from an economic recovery. Given the US-India tariff deal is still under negotiations with no clear timelines, we continue to prefer domestically focused sectors.

We remain constructive on Financials which has been among the top-performing sectors this year. We have started seeing a modest uptick in credit growth, which should accelerate over the next two years on the back of the central bank’s recently announced capital easing measures. The asset quality is stable, credit costs are low and the phase of NIM compression appears to be reversing with the rate-easing cycle nearing an end. With the sector expected to deliver mid-teens earnings growth in FY26, still under-positioned and trading at reasonable valuations, we believe risk-reward looks favourable.

The Consumer Discretionary sector is another overweight for us, with the sector likely to benefit from a boost in demand on the back of income tax and the lagged effect of GST cuts announced earlier in the year. Benign commodity prices supporting margins, upcoming elections in key states, and potential wage hikes from the 8th pay commission also support our constructive stance on the sector. We like Autos despite the rally post GST announcement, as volumes recover and earnings improve, given a lower base, consumption recovery, easier financial conditions, and under penetration.

We also like Telecom, which is expected to see an uptick in ARPU and improvement in FCF (free cash flow) generation. Cement is also likely to do well with demand expected to remain strong and anticipated price hikes in H1 FY27, leading to better margins.