DSP MF’s Sambre cautions on valuations; bullish on selective opportunities in NBFCs, IT in 2026

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Vinit Sambre, Head of Equities at DSP Mutual Fund, has outlined a cautious yet opportunistic outlook for the Indian markets in 2026, identifying high valuations as the primary headwind. Speaking in an interview with CNBC TV18, Sambre noted that despite a challenging 2025 marked by global uncertainties and a domestic corporate earnings slowdown, aggregate market valuations have not corrected significantly, leaving little margin of safety for investors.

"The headwinds which we faced last year, 2025, was very unusual," Sambre stated, adding, "I don't see that there is a great margin of safety to start maybe looking at in a big way." He believes a clear market direction for 2026 hinges on two potential triggers: either valuations becoming more reasonable or a distinct clarity on earnings momentum catching up.

Despite his caution on the broader market, Sambre identified several pockets of opportunity. He pointed to interest-rate beneficiaries as a top bet, with lending institutions, and more prominently Non-Banking Financial Companies (NBFCs), poised to benefit from lower interest costs. "That's where one pocket which I think should do well," he commented.

Sambre also sees potential in cyclical recovery plays. He highlighted the power sector, which he believes could see a turnaround after an unusual slowdown caused by an extended monsoon. Another area of focus is the agrochemical space, which was similarly affected by an unusual season. "The stocks are actually trading quite you know, cheap in a way as compared to their history. So I think that's one space to sort of focus on," he advised.

Regarding the Information Technology (IT) sector, Sambre holds a contrarian positive view, largely based on valuations. He argued that the sector has already priced in significant risks, including an uncertain global environment, poor deal flow, and the threat from Artificial Intelligence (AI). "Any change in the outlook globally can lead to a turn in the sentiments," he explained. He also touched upon mergers and acquisitions in the space, like the Coforge deal, stating that while acquisitions are fraught with risk, it is essential for IT companies to invest in new technologies to avoid shrinking.

On the debate between large-caps versus mid and small-caps, Sambre acknowledged that his own fund positioning shows a preference for large-caps in the near term. However, he remains a firm believer in the long-term potential of smaller companies. "If one actually just pulls the period for a longer term, I believe the small and mid-caps in India, they have good potential to keep outperforming the large caps," he said. He conceded that 2026 could be another year of underperformance for small-caps but remains confident in finding bottom-up opportunities for the long run.

Sambre also commented on the market's increasing volatility and trend-oriented nature, especially in the mid- and small-cap space, which he attributes to a chase for near-term momentum driven by significant fund flows. However, he maintains that, "in the long term, eventually what will matter is that durable earnings and such the competitive business are going to sort of outperform."