In an interaction with Kshitij Anand of ETMarkets, Mehta highlighted that while global headwinds such as geopolitical tensions, rising crude oil prices, and FII outflows weighed on equities, the underlying strength of the Indian economy remained intact.
Looking ahead to FY27, he believes that a meaningful market revival will hinge on global stability—particularly easing geopolitical risks, stable crude prices, and a return of foreign inflows—alongside continued support from domestic growth drivers such as government capex, consumption demand, and steady earnings momentum. Edited Excerpts –
Q) FY26 returns have turned negative. How do you sum up the financial year?
A) FY26 was a challenging year for markets, mainly due to global geopolitical tensions, rising crude oil prices, and foreign investor outflows. While the first half saw strong momentum, the later part of the year witnessed correction and volatility.
Mid and small caps saw sharper declines due to high valuations. However, domestic fundamentals remained strong with steady economic growth and strong participation from domestic investors. Overall, it was a year of consolidation rather than a structural breakdown.
Q) Key triggers for FY27 that could lead to market reversal?
A) Markets could see improvement if geopolitical tensions ease, especially in the Middle East. Stability in crude oil prices will be very important for India.Other key triggers include a return of FII inflows, stable currency movement, and continued earnings growth from Indian companies.
Domestic factors such as government capex, RBI policy stance, and strong consumption demand will also play a key role. A combination of global stability and strong domestic growth can bring back bullish sentiment.
Q) Which sectors should investors focus on for FY27?
A) Investors should focus on sectors with strong earnings visibility and policy support. Banking and financials remain attractive due to steady credit growth and improving asset quality.
Defence and capital goods will benefit from government spending and long-term order books. Pharma offers stability in uncertain global conditions.
Infrastructure-related sectors also look positive due to ongoing capex push. Overall, sectors linked to domestic growth and government spending should remain in focus.
Q) How should one approach gold and silver in FY27?
A) Gold and silver should be seen as a hedge rather than core investment. With ongoing global uncertainty, gold is likely to remain supported. It helps protect portfolios during volatility and currency weakness.
Silver may remain more volatile but can benefit from both industrial demand and safe-haven buying. Investors can maintain a small allocation, around 10–15%, in gold and silver to balance risk, especially during uncertain global conditions.
Q) Are there sectors available at attractive valuations now?
A) Yes, after the recent correction, some sectors are becoming attractive. IT stocks are available at better valuations compared to previous years, although concerns around AI and global demand remain. Select banking stocks also offer value due to strong fundamentals.
Some large-cap stocks across sectors are now trading at reasonable valuations. However, investors should remain cautious in mid and small caps where valuations are still relatively elevated in certain pockets.
Q) How are Indian markets positioned against peers in terms of valuations?
A) India continues to trade at a premium compared to other emerging markets. This premium is justified due to strong economic growth, stable policy environment, and better corporate earnings visibility.
However, in the near term, valuations had become stretched, especially in mid and small caps, leading to the recent correction.
After this correction, valuations in large caps are becoming more reasonable, making India relatively attractive from a long-term perspective.
Q) Will FII flows reverse in FY27?
A) FII flows have remained weak due to global uncertainty, rising US interest rates, and currency pressures. A reversal in flows will depend on global stability, easing geopolitical tensions, and better risk sentiment.
If crude oil stabilizes and the rupee strengthens, FIIs may gradually return. At the same time, strong domestic flows from mutual funds and retail investors continue to provide stability to Indian markets, reducing dependence on foreign flows. valuations are still relatively elevated in certain pockets.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)