Currently, with inflation below RBI’s target rate and the central bank likely to support growth with a bias towards rate cuts, the likelihood of the market finishing the year on a 10 percent rally is quite strong, said Vikas Gupta, CEO and Chief Investment Strategist at Omniscience Capital, in an interview with Moneycontrol.
According to him, 2026 should be significantly better than 2025, at least fundamentally.
Tailwinds for India could be the India-US trade deal and several other bilateral trade deals with other trading blocks or countries, he said, adding the end of the Russia-Ukraine war, or even a long-term ceasefire, could result in significant positive sentiments for markets globally.
Do you believe the valuations of tech companies have already priced in all the headwinds? Do you expect a rerating in valuations if revenue growth triples from current levels?
As per our analysis, the IT sector looks overvalued for the single-digit growth rates which are expected in the next couple of years. A tripling of revenue growth would mean something around 20 percent, which would definitely imply a significant rerating.
However, the chances of that happening in the next few quarters are very low, in our estimation.
Are PSU bank valuations moving closer to those of private banks? Do you expect their strong performance to continue in 2026?
The PSU banks are still pretty far from the valuations of private banks. The PSU Bank index is currently at a PE of 9, while the Private Bank index is at 20.
So, PSU banks are at a 50 percent discount to the private banks. Directionally, the PSU banks have started moving upwards towards the private bank valuations.
However, it is a long way off. We think the PSU banks have a strong growth outlook for the double-digit growth rates in the mid-term, they are priced at a very significant discount to their intrinsic values.
The market seems to have realised the mispricing and hence the gap has started closing. But the gap between the market price and the intrinsic value is very wide and it should close consistently over the next few quarters, provided revenue and earnings growth remain consistent.
What is your view on the new labour code? Will it impact companies across the infrastructure sector?
Definitely, the code will impact the companies. But the second order impact is that this will push the industrials and services sectors from the unorganized towards the organized part of the spectrum, which should benefit the listed players in the medium term.
Have we moved past the phase of earnings downgrades?
Most likely, yes. However, whether it is fully incorporated in the valuations is difficult to say. Probably the FY26 results would entail a further round of milder downgrades for some sectors which could result in valuations for these sectors getting rationalized.
Do you believe that, given the decent overall performance so far, Indian equities could finish the year on a strong note with a rally of more than 10 percent?
Currently, with inflation below RBI’s target rate and RBI likely to support growth with a bias towards rate cuts, the likelihood of finishing the year on a 10 percent rally is quite strong.
Do you think 2026 could be a much better year for the market compared to 2025? What could be the major tailwinds and headwinds?
2026 should be significantly better than 2025, at least fundamentally. Further, with interest rate cuts likely, equities, being like very long duration bonds are likely to respond positively. This could be helped by the US Fed and other global central banks also either holding steady or cutting rates. But that would require that the US tariffs on other countries and other global factors stabilize and supply chains run smoothly.
Tailwinds for India could be the India-US trade deal and several other bilateral trade deals with other trading blocks or countries. The end of Russia-Ukraine war, or even a long-term ceasefire, could result in significant positive sentiments for markets globally.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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