Raamdeo Agrawal, Manish Chokhani bet on PSU banks, autos for 2026 as broad market returns look capped

Raamdeo Agrawal, Manish Chokhani bet on PSU banks, autos for 2026 as broad market returns look capped

• Indian equity index returns seen modest in 2026, but select sectors offer upside
• Autos and PSU banks expected to benefit from credit growth revival
• Focus on companies with strong earnings visibility over broad market bets

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Veteran market investors Raamdeo Agrawal and Manish Chokhani expect Indian equity markets to deliver only modest index returns in 2026, but see clear opportunities in select sectors and stocks, driven by a revival in credit growth, improving earnings visibility, and policy-led balance sheet repair.

Speaking at CNBC-TV 18's recent market conclave, 'The Alpha Managers 2026', Agrawal, chairman and co-founder of Motilal Oswal Financial Services, said that while broad-based market rallies are unlikely, earnings delivery and sector-specific tailwinds could create avenues for alpha. “When the median return is lower, large caps have a better chance of beating the market,” he said, signalling a preference for companies with visible earnings over valuation-led bets.

Agrawal highlighted that the macro backdrop is turning supportive. Policy measures, including a cumulative 125 basis point cut in interest rates, a recovery in credit growth from 8 to 9 percent to 10.5 to 12 percent, and a sharp reduction in GST rates — have already begun to inject liquidity and revive growth. “The government had earlier curtailed credit growth, possibly to manage inflation, but now they are clearly shifting gears,” he said. “They have beaten down the credit flow for whatever reason. Now they have to get it back to 40 to 50 percent. That gives you 11 to 12 percent nominal growth and then it becomes evergreen.”

Among sectoral calls, Agrawal identified autos as a potential outperformer. He pointed to a cyclical recovery in two-wheelers and passenger vehicles, stabilising input costs, and normalising demand as factors that could make the auto sector the “star of the year.” Financials, particularly PSU banks such as SBI, were also highlighted as key beneficiaries of the credit growth revival. Agrawal suggested investors could consider broad exposure via auto ETFs or PSU-focused funds to capture sector-wide upside.

Manish Chokhani, director at Enam Holdings, struck a more cautious tone on index-level returns but was clear on where alpha opportunities lie. He said private investment remains cautious amid global uncertainty, making public sector resource mobilisation through privatisation, disinvestment, or new production-linked incentive (PLI) schemes critical for improving sentiment. “If some of those assets move into private hands, like what happened in 2000-03 during the Vajpayee era, it reignites animal spirits,” he said.

Chokhani also noted that recent labour reforms have increased compliance and accounting costs for companies, reinforcing the need for policies that directly improve profitability. On markets, he said an 8 to 10 percent index return would be a reasonable outcome for 2026, while PSU banks and select public sector companies offer attractive risk-reward at current valuations.

Both Agrawal and Chokhani downplayed the impact of capital gains taxation on overall market outcomes. “It’s a sentiment booster, but not a game changer,” Chokhani said, emphasizing that sustainable earnings growth and policy transmission are far more critical to returns.

The investors also highlighted the potential of earnings to drive selective alpha. Agrawal noted that aggregate earnings across 350 large-listed companies are expected to grow around 20 percent in 2026, far outpacing projected index returns of 8 to 10 percent, underscoring the importance of picking companies with strong earnings visibility.

Global uncertainties, including shifting trade dynamics and technological disruption, were also discussed. While Agrawal and Chokhani acknowledged these headwinds, they emphasized that focusing on businesses they understand, particularly in sectors benefiting from domestic policy tailwinds, remains the key strategy.

For 2026, Agrawal and Chokhani see opportunity in focus, not breadth. Broad market gains may be muted, but pockets like PSU banks, autos, and select large caps could deliver meaningful upside as credit growth revives and earnings momentum returns. In a year where policy tailwinds and balance sheet repair matter more than headlines or tax tweaks, they signal that disciplined, selective investing—not chasing indexes—will define who wins and who merely watches from the sidelines.