Daily Voice: Runaway market rally unlikely in 2026; FMCG recovery gradual but worst phase behind, says Shriram Life’s Ajit Banerjee

Ajit Banerjee is the President and Chief Investment Officer at Shriram Life Insurance

• Expect Q4FY26 to close fiscal year on a firmer footing compared to relatively softer first half
• FY26 earnings growth likely to be in high single digits
• Worst appears largely behind FMCG sector, though recovery likely to be gradual

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According to Ajit Banerjee, the President and Chief Investment Officer at Shriram Life Insurance, the 2026 is likely to be a year of market consolidation rather than one of runaway returns.

Valuations in certain pockets remain elevated and a meaningful acceleration in earnings will be required to justify further multiple expansion. Global liquidity conditions, the US rate trajectory and geopolitical developments will continue to influence capital flows, he said in an interview to Moneycontrol.

He believes the worst appears largely behind the FMCG sector, though the recovery is likely to be gradual. "The December quarter showed stabilising margins, improving rural volumes and easing input cost pressures. However, urban demand remains skewed toward premium categories," he said.

Do you see strong and ample opportunities in the mid-cap and small-cap domestic manufacturing space?

Whilst meaningful investment opportunity exists in the mid- and small-cap domestic manufacturing space but it’s not very broad based at this point of time. Hence, the bottom-up approach will be critical in picking up the stocks.

Union Budget FY27 has tried to lay a lot of emphasis in developing and projecting India’s manufacturing sector as a reliable, cost efficient, quality sourcing partner which can be considered for supply chain diversification from China to both domestic and export market. To facilitate this objective various government schemes and initiatives like Production-Linked Incentive (PLI), relaxation of compliance norms, providing credit guarantee, reduction of customs duty on some critical minerals etc. are already put in place.

For past few years we have seen significant defence sector indigenisation, electronics manufacturing growth and a revival in large private sector capital expenditure. Mid and small-cap companies are often direct beneficiaries of this transition, particularly those operating in niche industrial segments such as auto ancillaries, electronics manufacturing services (EMS), specialty chemicals, defence components and capital goods.

That said, valuations across segments of the mid and small-cap universe continue to trade above long-term averages. The next phase of returns will therefore depend far more on earnings delivery than on multiple expansion.

Opportunities are likely to emerge in companies where order books are healthy and execution visibility is high, balance sheets are clean, operating leverage is improving, and companies have pricing power or export diversification.

In summary, the opportunity is attractive, but disciplined stock selection will be essential to generate sustainable returns.

How would you summarise the December quarter earnings season and management commentaries? What is your outlook for Q4?

The December quarter earnings season was broadly mixed, though signs of stabilisation were evident. Aggregate performance was moderate, with notable pockets of strength in capital goods, select automobile segments and parts of the commodities space.

For the Nifty 50, aggregate revenues grew 9.2% year-on-year, while adjusted profit after tax (adjusted for the labour code impact) increased 6.9% year-on-year. This was marginally below market expectations of ~8% earnings growth for the quarter. Capex-oriented sectors delivered strong earnings momentum and discretionary consumption segments such as retail and automobiles reported healthy growth. In contrast, traditional defensives remained relatively subdued.

The Nifty Midcap 150 continued to outperform large caps, delivering earnings growth of ~13%, reinforcing the relative strength in the broader market. Management commentary was incrementally constructive. Order inflows in industrials remained healthy, capital expenditure pipelines appeared intact and rural indicators suggested a gradual recovery in demand conditions.

Looking ahead, we expect the fourth quarter to close the fiscal year on a firmer footing compared to the relatively softer first half. Overall earnings growth for FY26 is likely to be in the high single digits, with FY27 appearing more constructive, potentially delivering growth of around 15%, subject to macro stability and continued execution momentum.

Is the worst over for the FMCG sector?

The worst appears largely behind the FMCG sector, though the recovery is likely to be gradual.

The December quarter showed stabilising margins, improving rural volumes and easing input cost pressures. However, urban demand remains skewed toward premium categories and overall volume growth for many players is still in the mid-single digit range amid highly competitive intensity. Recent GST rationalisation has also provided incremental support, helping improve sentiment and create some near-term momentum in select categories.

A stronger, volume-led recovery will depend on sustained improvement in rural incomes, stable food inflation and better wage growth and a broad-based urban demand revival. In summary, the bottom seems to be in place, but the recovery is likely to be steady and gradual rather than sharp.

Is it better to stay away from the IT sector even in 2026, given AI disruption?

Complete avoidance of IT sector isn’t recommended unless that’s a very firm call to stay away at this juncture. While AI is disruptive, it also presents a meaningful opportunity. Large Indian IT companies are investing aggressively in AI-led transformation, automation, cloud integration and consulting-led models.

In the near term, deal cycles remain elongated, discretionary spending is soft and margin pressures persist. However, over the medium term, AI adoption could expand overall technology spending rather than compress it, with vendor consolidation potentially benefiting scaled players. Cost-optimisation projects remain resilient.

Historically, the Indian IT sector has adapted well to structural shifts. While valuations may face intermittent pressure, sharp corrections could present selective opportunities. Exposure, if any, should be focused on high-quality, cash-generating companies with strong client relationships and taken only with a medium- to long-term perspective.

Which sectors are most likely to remain resilient in this rapidly changing environment?

Resilience is likely to be found in sectors supported by structural tailwinds and strong domestic demand visibility.

• Capital Goods & Infrastructure - Benefiting from sustained government capex and an expected revival in private sector investment.

• Defence Manufacturing - Supported by government’s focus on indigenisation, import substitution and rising export opportunities.

• Select Financials (large banks and NBFCs) - Backed by healthy credit growth and stronger balance sheets.

• Healthcare & Hospitals - Driven by structural demand growth and capacity expansion.

These sectors offer relatively better earnings visibility, pricing power and balance sheet strength in a dynamic macro environment.

How do you interpret the inflation data released under the new series?

Headline CPI inflation in January stood at 2.75%, computed on the new CPI series with the base year as 2024, with food inflation at 2.1% and core inflation at 3.4%. The new basket has incorporated changes in terms of both item composition and weightages compared to the old CPI basket. The items and their corresponding weights in the new CPI basket are based on the Household Consumption Expenditure Survey (HCES) 2023-24, which better captures the current overall consumption pattern.

Even though the broader expectation was inflation is likely to moderate up going forward in the new methodology considered, but this being the first print with the new set of data future trends and projections can be done on series of subsequent prints with varying underlying data sets.

Is the worst over for equity markets in 2026, or could it be another year of consolidation?

2026 is likely to be a year of consolidation rather than one of runaway returns. Valuations in certain pockets remain elevated and a meaningful acceleration in earnings will be required to justify further multiple expansion. Global liquidity conditions, the US rate trajectory and geopolitical developments will continue to influence capital flows.

On the positive side, India’s macro stability remains strong, the government capex cycle is intact, private investment is showing early signs of revival and domestic flows continue to provide structural support.

Key risks include global uncertainties, commodity price volatility and earnings disappointments in high-valuation segments. In this environment, markets are likely to reward earnings quality and balance sheet strength over narrative-driven momentum.