Global uncertainty could create a 3–5% downside, warns Sushant Bhansali; sees small-cap stocks reviving in 2026

India’s equity markets may be entering a phase of cautious optimism, said Sushant Bhansali, CEO, Ambit Asset Management, in an interview with LiveMint. He believes the Nifty is positioned for mid-teen returns in a normal scenario, though global uncertainty could still trigger a 3–5% downside in FY27. At the same time, improved foreign liquidity could deliver an equivalent 3–5% positive surprise. Bhansali flags potential tax changes as “an unquantifiable risk,” emphasising that investors should avoid speculative positioning ahead of the Budget.

What are your Nifty and Sensex targets for December 2026?

Corporate earnings seem to have bottomed out in H1, and we expect earnings recovery from FY26 H2 onwards. The current consensus Nifty EPS estimates suggest mid-teens growth in FY27. The valuation multiples are currently in line with long-term averages; the benchmark index should thus deliver mid-teen returns in a steady state. However, global uncertainty could shock the earnings trajectory and thereby create a downside risk of about 3–5%. Conversely, if global sentiment toward Indian equities improves and liquidity support from global investors increases, the Indian stock markets could surprise us with a 3–5% upside.

How should investors rebalance their portfolio for the Budget?

Given high indices and heavy domestic flows offsetting record FPI selling, risk management around the Budget is more critical than trying to “front-run” announcements.

Trim obvious froth: Reduce exposure to thematic names that have rallied far ahead of earnings, especially in illiquid stocks where flows have chased performance.

Rebalance to quality: Tilt toward high RoE, “clean” balance-sheet compounders in banking/financials, industrials, select PSU leaders and consumer-adjacent plays that benefit from any consumption-supportive measures.

Potential tax changes (capital gains, STT, debt fund taxation tweaks) remain an unquantifiable risk, and one should not position a portfolio based on such uncertainty.

Will we see a revival in small caps next year?

The probability of a cyclical revival in 2026 is high if earnings in the broader market stabilise, domestic SIP flows remain sticky and global rates peak out—thereby lowering the risk-free anchor. However, leadership within small caps is likely to be narrower: expect the quality-led small/mid segment to recover first, while over-leveraged names may continue to underperform.

Which sectors should you focus on in 2026?

Financials: Well-capitalised private banks, select PSU banks and niche NBFCs should benefit from credit growth and improving asset quality; valuations are reasonable compared to historical averages.

Discretionary: Higher disposable income, coupled with a GST cut, should bolster the discretionary segment. Low-ticket discretionary categories are likely to be the early winners.

Industrials & capital goods: Government and private capex in infrastructure, manufacturing, defence and railways remain a core policy plank, supporting order books for EPC, capital goods and logistics. One should keenly look at budgetary targets and actual tax collections in addition to allocations when investing in these sectors.

Gold or equities: Your pick and why?

For a long-horizon investor, equities remain the primary wealth compounder, while gold serves as a risk hedge and currency/geopolitical insurance. If US real yields roll over and global risk sentiment improves, relative performance should again tilt in favour of equities over gold.

What is your investment strategy for the remainder of the year?

Use market corrections to add to chosen structural compounders rather than adding new marginal ideas at peak multiples. Move up the quality and liquidity curve in small/mid-caps; reduce position sizes in names where exit risk is high.

Can we expect foreign portfolio investors to return meaningfully in 2026? What would trigger a reversal in flows?

2025 has been one of the toughest years for FPI equity flows in India, despite robust FDI and positive FPI debt flows. A meaningful return of risk-on FPI sentiment in 2026 likely requires:

A clear US rate-cut trajectory and lower global real yields, reducing the opportunity cost of EM risk.

The stabilisation of INR and evidence of earnings growth picking up after the next fiscal.

Progress on fiscal consolidation and reform continuity in the post-election environment, signalling macro stability, predictable taxation and improved ease of doing business.

What are your key expectations from the upcoming Budget?

We expect fiscal prudence to continue, alongside structural reforms aimed at boosting consumption and job creation.

What is the one piece of advice you would give to new investors?

Invest with a minimum horizon of 5–7 years rather than seeking a 6–12-month trade. Prioritise diversification (across market caps, geographies, gold and fixed income) and avoid leverage or F&O unless you are prepared for the permanent loss of capital. Asset allocation is just as vital as asset selection in determining long-term returns.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.