Daily Voice | Two factors to drive equities this year; Budget focus on consumption, capex: Ashwini Shami

Ashwini Shami is the President and Chief Portfolio Manager at OmniScience Capital

• Ashwini Shami expects fiscal and monetary initiatives to start reflecting in Q3 earnings
• Expect Q4 also to exhibit strong earnings growth
• Budget 2026 to focus on consumption, capex
• Believe relative valuation narrowing between India and other emerging markets

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According to Ashwini Shami, President and Chief Portfolio Manager at OmniScience Capital, current geopolitical factors are largely factored into existing market levels.

He said in an interview with Moneycontrol that the outlook for the year will primarily be determined by two factors: the continued impact of various fiscal and monetary stimulus measures on corporate earnings, and the relative underperformance of Indian markets compared with global peers.

Regarding the Union Budget, Shami expects the government to maintain strong allocations for capital expenditure and to announce incremental measures to support consumption.

Do you expect geopolitical tensions to remain in the news this year and cap the market’s upside?

The current geopolitical factors are broadly factored into the current market levels. The two factors that will broadly determine the outlook for this year will be - the continued impact of various fiscal and monetary stimulus on the corporate earnings and the relative underperformance of Indian markets compared to the global peers.

The time correction over the last one year and the improving growth rate for the Indian economy at 7-8% is likely to attract foreign flows. While there are pockets of significant overvaluations, we expect the fresh flows from both domestic and international investors to help reprice undervalued sectors such as banking, power, engineering & construction and business services.

So, even though the broader market has come to the more reasonable valuations, there are significantly better opportunities for bottom-up, stock specific alpha-hunting scientific investors.

What could be the biggest reform in Union Budget 2026 that would decisively lay a strong foundation for equity markets?

Union budget for the last many years has been growth focused allocating significantly to capital expenditures while being exceptionally conservative on the revenue expenditures and at the same time improving the fiscal deficit numbers year on year.

The last year’s budget also focussed aggressively on boosting consumption through tax cuts. We expect the government to maintain the same trajectory of strong allocations on the capital expenditure and also announce incremental measures to support consumption.

Do you expect PSUs to be star performers this year?

Execution of orderbooks / work-in-progress projects shall continue to remain the key drivers of earnings growth and stock performance. For the undervalued names from financial services, housing finance, power and infrastructure one could also expect significant rerating resulting in even stronger stock performance.

Are you super bullish on BFSI after several years of underperformance in the sector?

Banking sector while being one of the most undervalued sectors has already witnessed significant unlocking over the last one year. While the Nifty 50 over the last one year delivered around 10% returns, Nifty Bank index is up nearly 22%. On the valuation front, Nifty 50 is at 22 price to earnings multiple whereas the bank index trades at 16 times earnings.

We expect this performance divergence to continue this year as market reprices public sector and private sector mid/smallcap banks and other financial services companies including pure play housing finance firms and infrastructure NBFCs.

Do you think 2026 will be challenging for the markets until earnings recover to mid-teen growth?

We believe with the relative valuation narrowing between India and other emerging markets and the economic growth rate improvement from 5.6% to 8.2% over the last one year, the case for FII inflows is becoming stronger. The expectation of a couple of additional rate cuts from the US Fed in view of softening labour market also supports the case for money moving to higher-yielding emerging markets.

We expect the upcoming budget to focus on boosting consumption further while sufficiently investing in the growth assets which we believe will support the overall economic growth in 2026 and also take markets higher.

Do you think the risk-reward ratio for gold and silver is unfavourable at current levels?

Precious metals have had a strong year triggered by the trend of de-dollarization and money moving to other currencies, including precious metals. The exceptional steep rise itself is indicative of exceptional price volatility and should caution investors who are allocating significantly to gold and silver. The price volatility seen in the lithium prices over the last 5 years is a good reminder of the price risk when prices go beyond the fundamentals.

Based on Q3 earnings announced so far, are you convinced that the earnings recovery is continuing and that Q4 numbers will be stronger?

While only a limited number of companies have reported their earnings so far, the overall trend looks positive for the undervalued sectors, especially in financial services where both private and public sector mid-cap banks have reported strong earnings growth and improving asset quality.

IT also reported better-than-expected numbers. We expect the fiscal and monetary initiatives to start reflecting in the Q3 earnings and expect Q4 also to exhibit strong earnings growth.