Daily Voice: Sandeep Bagla flags earnings recovery as key 2026 challenge; sees gold, silver rally continuing on inflation risks

Banks and financial services are relatively safer options as the credit costs are low, monetary easing is underway and valuations are reasonable. Credit offtake is picking up and there is visibility on earnings growth of banks as liabilities are expected to price lower going forward.

Indians are increasingly looking to spend on better quality products and enhanced experiences. All stocks in discretionary universe are attractive given the consumer mindset and behaviour. Stocks in hospitality, which is hospitals and hotels, could also do well. Consumer staples are expected to mildly underperform in absence of incremental triggers.

Can the IT sector emerge as a dark horse next year? Also, do you expect the AI-led rally to continue in 2026?

IT stocks are at the lower end of the growth curve right now. AI appears to be transformative and destructive, and may enhance corporate productivity. While there is enthusiastic investments in AI related eco system, the world is not very clear on the extent and speed of user adaptability, which could lead to disappointment at some point of time. Indian IT sector may perform relatively better, as valuations are not very demanding.

Do you believe RBI is nearing the tail end of its monetary policy easing cycle?

RBI appears to be already past the monetary easing cycle. The repo rate cuts have had less than desired impact on market yields. Government bond yields have risen and corporate bond spreads are only heading higher.

There are concerns over lack of foreign investor interest in India at current market levels. Impasse over trade deal with US is not helping either. Further rate cuts risk creating imbalances on the currency side as well.

What do you see as the key challenges and triggers for equity markets in 2026?

Earnings recovery is the biggest challenge. High valuations imply elevated expectations from corporate earnings. Sluggish private capex is a concern and consumer sentiment can be patchy and unpredictable as well. Positive factors could be a favourable trade deal, which could lead to a relief rally in equities.

Renewed global monetary printing by central banks could add another leg to the equity rally. A healthy rally would ensue only when there is greater visibility of growth in corporate earnings. Markets have gone through a period of time correction and some price correction as well. Credit offtake has picked up in the last few weeks. An economic recovery could lead to improvement in the equity market sentiment.

Do you expect broader markets to lead and outperform benchmark indices in 2026?

A lot of institutional investors are investing only in a limited number of larger market cap companies. Retail investors tend to invest more in stocks of smaller companies. Valuations of smaller companies are more expensive as compared to larger companies as growth expectations are higher. In 2025, large caps out performed small caps significantly. It is quite possible benchmark indices continue to outperform in 2026 as well.

Do you expect the rally in precious metals to continue, with gold surpassing the $6,000 level and silver futures reaching $100 per ounce next year?

Gold and silver and a host of other commodities rose sharply in 2025, surprising many a market participants. In my opinion, inflation expectations are on the rise due to the impact of tariffs imposed by US and the likely retaliatory action by other countries in response. Inflation is likely to surprise on the upside in 2026 and as a result I expect the rally in gold and silver to continue as well.

Do you see the rupee stabilising in 2026, or weakening toward the 100 level against the US dollar?

Rupee is in a precarious position. FPIs are withdrawing from India and diverting investments to countries which could benefit from AI related areas. Exports are under threat from Trump tariffs. RBI has adopted a multi-pronged strategy of using buy sell swaps, spot intervention and moral suasion as well to prop the value of Indian Rupee.

In the initial months of 2026, Rupee could be relatively stable. Longer term stability would depend on signing of the trade deal and the return of foreign investors.

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