Daily Voice: Shailendra Kumar expects Q3FY26 earnings season to be strongest in two years; sees 15–20% Nifty rally in 2026

Shailendra Kumar is the Chief Investment Officer at Narnolia Financial Services

• MSCI India emerged as one of the top-performing indices during the final quarter of 2025, signaling a potential shift in momentum, said Shailendra Kumar of Narnolia.

Did our AI summary help?

Shailendra Kumar, the Chief Investment Officer at Narnolia Financial Services expects the Indian markets to outperform in 2026 regardless of how the AI investment theme unfolds.

He sees 15-20 percent gains for Nifty during 2026.

According to him, following a strong rebound in Q2FY26, the upcoming Q3FY26 season is poised to be a standout performer—likely the strongest in over two years. "With consumption surging and inflationary pressures easing, I expect corporate India to deliver a high-velocity growth performance this quarter," he said in an interview to Moneycontrol.

Do you believe the US AI theme is overvalued at current levels?

The US market currently trades at high valuations, with the S&P 500's trailing twelve-month PE ratio reaching 30, near multi-year peaks that warrant caution. While AI stocks have driven much of the market's rally over the past 2-3 years, AI-related investments now account for approximately 40 percent of US economic growth.

The major AI companies maintain robust margins and cash flows, suggesting that any corrections may be limited to price adjustments or consolidation periods rather than significant declines, despite valuation concerns.

Some comparisons to the dot-com era exist, but the differences are notable enough that they don't justify major alarm. Today's Magnificent 7 companies operate with 29% net profit margins and trade at 27x forward PE (24-month basis), whereas the top seven companies by market cap in early 2000 had only 16% net profit margins yet commanded 52x forward PE multiples.

Can India emerge as an outperformer if the AI theme underperforms in 2026?

We expect Indian markets to outperform in 2026 regardless of how the AI investment theme unfolds. While India appeared to lag in 2025—particularly compared to the strong performance of Taiwan and South Korea, driven by AI momentum, Indian underperformance was primarily attributable to decelerating corporate earnings and stretched valuations at the end of 2024 rather than the AI trade itself.

With valuations now normalized to more reasonable levels and corporate earnings showing signs of improvement, the outlook favours Indian markets in the year ahead. Notably, MSCI India emerged as one of the top-performing indices during the final quarter of 2025, signaling a potential shift in momentum.

Do IT and chemicals appear to be potential contrarian opportunities for 2026?

From a sector perspective, IT and Chemicals still face some valuation headwinds. However, select individual stocks within these sectors have reached attractive entry points for investment.

Will the metal sector maintain its outperformance in the coming quarters?

The recent strong performance in the metals sector stems from significant price increases in underlying commodities such as aluminum and copper. Going forward, the sector is likely to experience heightened volatility, which is characteristic of metals investments.

Do you expect the Q3 earnings season to mark a strong start to an earnings upgrade cycle?

The 'earnings floor' is firmly behind us. Following a strong rebound in Q2FY26, the upcoming Q3FY26 season is poised to be a standout performer—likely the strongest in over two years. With consumption surging and inflationary pressures easing, we expect corporate India to deliver a high-velocity growth performance this quarter.

Which sectors are likely to take the lead if earnings upgrades outpace downgrades during the December quarter results?

Given the uneven nature of early-cycle growth, we advise a stock-specific lens over a generalized sectoral approach. Our primary expectation lies in a wave of upgrades for Automotive and Financial counters. Furthermore, we expect a handpicked selection of Consumer, Pharma, and IT stocks to diverge from their peers with exceptionally strong Q3 prints.

What do you see as the likely market outcome for 2026: 10–15 percent gains, 15–20 percent gains, or gains below 10 percent?

We expect 15-20 percent gains for Nifty during 2026.