Earnings growth to drive equity returns in 2026, not valuation re-rating: Kotak AMC’s Nilesh Shah

Shah highlighted that prolonged global volatility driven by geopolitical tensions, delayed FII inflows, or another earnings downgrade cycle remains the biggest risk in the first half of 2026.

• Indian equities may see moderate returns in 2026, led by earnings growth
• Gold and silver outlook remains positive, but 2025's surge unlikely to repeat
• Investors advised to diversify and focus on quality growth amid volatility

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After a turbulent 2025, marked by global volatility and relative underperformance, Indian equities are entering 2026 with a level of cautious optimism. According to Nilesh Shah, MD & CEO of Kotak AMC, the market is likely to deliver moderate returns, led more by earnings growth than by a re-rating of valuations. “Corporate earnings are likely to rebound to double digits in FY27, supported by rural recovery, revival in government capital expenditure, and a pickup in consumption,” Shah said.

He cautioned that while valuations have corrected from their peaks, offering some comfort, they remain elevated, especially in smallcaps. “Investors should expect selective outperformance rather than a broad rally,” he noted. Pointing to the bigger picture, Shah added, “India’s structural growth story remains intact, and foreign investor flows could return amid a weakening dollar and easing global risks.”

Domestic-oriented sectors are expected to lead the charge. Financials, including banks and NBFCs, could benefit from steady credit growth and improved underwriting discipline. Consumption-linked segments, such as autos and discretionary goods, may gain as rural per capita incomes rise and GST reforms take effect. Infrastructure and capital goods continue to benefit from policy support, while selective rotations into pharma, PSU banks, and mid-cap IT may emerge depending on global cues. In the midcap space, Shah expects better performance relative to largecaps and smallcaps, though he warned that smallcaps carry lingering froth risks due to concentrated ownership.

Also read: Indian economy doing well but we need to invest in R&D: Kotak AMC’s Nilesh Shah

2025 was a bumper year for gold and silver. The yellow metal rallied 65 percent year to date, while silver surged 149 percent, putting both metals on track for their strongest annual gains since 1979, when gold jumped 126 percent and silver soared 434 percent. On the continued run in 2026, Shah said, “Gold and silver retain a positive long-term outlook due to central bank buying and industrial demand, but the parabolic 2025 surge is unlikely to repeat. They should be treated as diversifiers, not return chasers.”

Shah highlighted that prolonged global volatility driven by geopolitical tensions, delayed FII inflows, or another earnings downgrade cycle remains the biggest risk in the first half of 2026. Yet he sees opportunities in sector rotations, domestic growth turning from headwinds to tailwinds, and multi-asset allocation capturing earnings-led alpha.

Investors, he said, should watch closely corporate earnings, FII flows, rural consumption trends, and central bank actions on gold. On strategy, Shah emphasized: “Follow the dharma of asset allocation—diversify across equity, debt, real estate, and precious metals with discipline. Reset SIP expectations to realistic levels, focus on quality growth at reasonable prices, and stay invested through volatility. India’s story is far from over; patience and selectivity will reward in 2026.”