Jimeet Modi, Founder & CEO of SAMCO Group, believes the Indian stock market may consolidate in 2026 and earnings growth may remain muted till Q1FY27. (SAMCO Group)AI Quick ReadExpert view: Jimeet Modi, Founder and CEO of SAMCO Group, doesn't think the Indian stock market will see a runaway rally in 2026, even though he believes the worst in terms of market volatility may be behind. He believes earnings may remain muted till Q1FY27.
"2026 may turn out to be more of a consolidation phase rather than a washout," Modi told Mint in an exclusive interview.
While the West Asian conflict has distorted India's near-term growth-inflation outlook, it does not, at this stage, derail the broader economic trajectory, Modi said.
India has had three genuine washout years in the last two decades: 2008, 2011, and 2015-16.
Each of them required the simultaneous failure of three conditions: first, a valuation reset from demonstrably stretched levels, typically with the Nifty trading above 25 times trailing earnings; second, a collapse, not a slowdown, in earnings growth — meaning Nifty EPS actually declining; and third, structural balance-sheet damage to the corporate sector, the banking sector, or both.
Measured against those conditions as of mid-April 2026, the setup looks nothing like the start of a washout.
The Nifty 50 trades at roughly 21 times trailing earnings, which sits close to the 5th percentile of its five-year valuation range.
You cannot fall deeply into cheapness from a level that is already modest; the mathematics of a multiple compression washout simply does not work from here.
Earnings are slowing, not collapsing, with consensus expecting single-digit Nifty EPS growth in FY26 and an acceleration into FY27.
And on balance sheets, corporate India is entering this period with leverage near two-decade lows and the banking sector with gross NPAs near multi-year lows.
Of the three preconditions for a washout, none are in place currently.
It would be premature to call 2026 a washout year for the Indian stock market.
While global uncertainties, ranging from geopolitical tensions to uneven economic recovery, may continue to weigh on sentiment, markets have already priced in a fair degree of caution.
Unless there is a significant escalation of the current conflict into a broader, world–war–like situation, the base case remains that the worst phase of volatility is likely behind us.
In that context, 2026 may turn out to be more of a consolidation phase rather than a washout- marked by bouts of volatility, but also selective opportunities for long-term investors.
Though there are signs of near-term macroeconomic stress building up for India, it’s important to distinguish between transient pressures and structural risks.
The ongoing tensions in West Asia have introduced a layer of uncertainty, particularly through their impact on energy markets and trade flows. In the interim, the most immediate challenge comes from supply chain disruptions and elevated crude oil prices.
As a large importer of oil, India remains vulnerable to spikes in energy costs, which can feed into higher inflation, widen the current account deficit, and put some pressure on the currency.
These factors, in turn, can complicate the policy environment, especially for the central bank as it balances growth and inflation objectives.
That said, from a stock market perspective, a significant part of this pain appears to have already been discounted. Markets tend to react ahead of the real economy, and the recent bouts of volatility reflect these concerns being priced in.
However, the real economy will have to absorb and manage these pressures over the coming months.
Corporations may face margin compression due to higher input costs, while consumers could see some erosion in purchasing power if inflation remains elevated.
The key point is that this stress is cyclical and externally driven rather than stemming from domestic imbalances.
India’s underlying macro fundamentals, such as steady domestic demand, controlled fiscal management, and a relatively strong banking system, provide resilience.
So, while the West Asian conflict has certainly distorted the near-term growth-inflation outlook, it does not, at this stage, derail the broader economic trajectory.
The correct metaphor is not a storm that destroys the house. It is a storm that delays some deliveries and forces us to reschedule some plans.
The question for an investor is not whether India is experiencing stress — it clearly is — but whether that stress is changing the medium-term trajectory, and on the available evidence, it is not.
At this juncture, the instinct to cut equity exposure and move defensively is understandable, but history suggests that periods of heightened uncertainty often create the most compelling entry points for long-term investors.
The broader strategy should be to gradually allocate to equities during these stressful phases rather than retreat from them.
As the old market adage goes, “buy when there is blood in the streets.”
In other words, when fear and pessimism are elevated, valuations tend to become more reasonable, and risk-reward improves meaningfully for patient capital.
While macro headwinds—particularly those stemming from geopolitical tensions—may persist in the near term, equity markets are forward-looking.
Much of the bad news tends to get priced in well before clarity emerges on the ground.
From a tactical standpoint, the time to consider trimming exposure or booking profits is typically when there is visible resolution, such as the signing of a peace treaty or a clear de-escalation.
Historically, it often takes about four to six months for such outcomes to materialise.
However, markets usually anticipate these developments well in advance. By the time a formal resolution is announced, equities may have already rallied significantly, leaving late movers at a disadvantage.
Latecomers to the party always have to foot the bill.
That said, this does not mean investors should ignore diversification.
A balanced approach—maintaining core equity exposure while selectively allocating to debt for stability and considering some global diversification—can help manage volatility.
In essence, this is less about making binary shifts and more about calibrated allocation: leaning into equities during periods of stress, staying diversified, and being mindful that the best opportunities often arise when visibility is at its lowest.
Individual tactical allocation, particularly during periods of elevated uncertainty, is one of the most reliable ways for investors to destroy their own returns.
The behaviour gap — the difference between what funds return and what fund investors earn — is almost entirely attributable to discretionary moves made at moments that felt the most compelling.
Have a rules-based asset allocation, sized to your real risk tolerance rather than your self-image of it. Do not concentrate shifts around single headlines.
Use systematic investment plans (SIPs) and staggered deployment rather than lump-sum timing.
If you must act, act slowly. The best investors of the modern era — Howard Marks, Ray Dalio, David Swensen, among them — converge on a single counter-intuitive insight: in uncertain markets, the value of a framework goes up, and the value of an opinion goes down.
Because "defensive" is a regime-relative property, not a permanent sector label — and the current regime is not punishing risk indiscriminately.
It is punishing specific vulnerabilities that happen to sit inside traditionally defensive names.
The underperformance of traditionally defensive sectors in the current environment reflects the fact that this cycle is not a typical risk-off phase—it is far more complex and driven by multiple, overlapping factors.
Historically, sectors like FMCG and IT have been seen as safe havens because of their relatively stable earnings and lower sensitivity to economic cycles.
However, this time around, both are grappling with their own structural and cyclical challenges.
FMCG companies are facing pressure from uneven rural demand, input cost volatility, and limited pricing power in a still-fragile consumption environment.
On the other hand, IT companies are dealing with a slowdown in global tech spending, delayed deal closures due to the AI onslaught, and cautious client budgets, particularly in key Western markets.
As a result, these sectors have not performed like classic defensives in the current market phase—they are being weighed down by sector-specific headwinds even as broader uncertainty persists.
Interestingly, even gold, which is widely perceived as a safe-haven asset, has not provided the expected protection in the immediate aftermath of the conflict.
After a strong rally leading up to the war, gold has seen some correction, largely due to profit booking and shifting expectations around interest rates and the dollar. The deeper lesson here is methodological.
A sector is defensive when its fundamentals hold up in a specific kind of stress, not all kinds of stress.
Banks were considered defensive in the 2000s and cost investors dearly in 2008. Technology was defensive in 2020 and cost investors dearly in 2022.
FMCG was defensive in 2015-16 and is underperforming today.
The label is backwards-looking; the reality is always regime-specific.
This is why our investment process does not think in terms of fixed sector labels.
It thinks in terms of leadership — what is actually showing price strength, earnings visibility, and balance sheet quality right now.
The market tells you every day, in price, what it is rewarding. Investors who listen to the market tend to do better than investors who insist on their own classification scheme.
In this particular cycle, what the market is rewarding is capital goods, defence, power, select private banks, and pockets of pharma.
That is a description of the regime, not a forecast of the future. It will change.
When it does, a framework-driven process will rotate; a label-driven process will sit in yesterday’s defensives, wondering why they are not defending.
Our view on the IT sector is more cautious than consensus, largely because we believe the challenges it faces are not just cyclical, but increasingly structural in nature.
Traditional IT services companies are going through a transition that could resemble a secular bear phase rather than a short-term slowdown.
The pressure is coming from multiple fronts—slower discretionary spending by global clients, longer deal cycles, and increasing pricing pressure.
But more importantly, the rise of AI is beginning to fundamentally alter the way technology services are consumed and delivered.
In many ways, AI could prove to be as disruptive to traditional IT services as Amazon was to legacy retailers like Best Buy, JCPenney, and Sears.
In those cases, the disruption was not sudden—it was gradual but relentless, leading to consistent value erosion as business models failed to adapt quickly enough to changing consumer behaviour and technological shifts.
Similarly, AI has the potential to compress the traditional IT services value chain.
Tasks that were earlier labour-intensive and billed on a time-and-material basis are increasingly being automated or delivered more efficiently through AI-driven platforms.
This could structurally impact revenue growth, margins, and the overall scalability of legacy IT business models.
That said, it is important to differentiate within the sector.
Not all companies will be impacted equally—those that are able to pivot, invest in AI capabilities, and move up the value chain could still create value over time.
However, the transition phase is likely to be prolonged and uncertain.
So, rather than a blanket avoidance, our stance would be one of selective caution.
Investors need to be far more discerning, focusing on companies that are adapting to the new paradigm, while being mindful that the sector as a whole may not deliver the kind of broad-based returns it has historically generated.
Expectations from the ongoing Q4 earnings season remain fairly muted, and that caution extends, to some degree, into Q1 as well.
The combination of global uncertainties, geopolitical tensions, and lingering demand-side softness means that a broad-based earnings revival is unlikely to be visible immediately.
In fact, the anticipated pickup in earnings has been pushed farther, largely due to these external disruptions. Input cost pressures, uneven consumption trends, and cautious corporate spending—especially in globally linked sectors—are likely to keep growth subdued in the near term.
As a result, markets may look through the next couple of quarters and focus less on headline numbers in Q4 and Q1, recognising that they are still part of a transition phase.
The more meaningful assessment of earnings momentum is likely to begin from the September quarter, when some of these transient headwinds could start to ease, the dust settles, and provide a clearer picture of underlying demand and profitability.
Earnings delays driven by external shocks tend to be recovered, not lost, once the shock clears.
Capex decisions that were postponed in FY26 do not disappear; they get pushed one or two quarters to the right.
If that is correct, the Q2 FY27 catch-up has the potential to be more pronounced than much of the Street currently models.
Investors who extrapolate near-term softness into a structural earnings view will be making the mirror image of the mistake investors made in 2021 when they extrapolated that boom forward.
The market already knows Q4 will be soft — it is looking through. The interesting debate is not about the print. It is about what the management signals about the quarter after next.
By then, if macro conditions stabilise and geopolitical risks do not escalate further, we could see a more “normalised” earnings trajectory emerge.
Until that point, earnings expectations are likely to remain tempered, and markets may continue to rely more on forward guidance and commentary by the company managements rather than just reported numbers.
Read all market-related news here
Read more stories by Nishant Kumar
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary. SAMCO Mutual Fund schemes follow a rules-based framework independent of these views.
Nishant is a market reporter at Mint, where he holds the official designation of Principal Correspondent – Markets. He has been closely tracking the Indian stock market as well as major global stock markets along with the broader macroeconomic trends for a decade.
He is obsessed with breaking down complex financial and economic concepts into clear and engaging stories. He focuses not only on what is happening in the markets, but also why it matters.
His coverage includes stock market trends, sector rotations, monetary and fiscal policy developments, inflation, growth data, and personal finance strategies.
With nearly 10 years of experience in covering financial markets, Nishant has covered bull markets, corrections, policy transitions, and macro developments that has equipped him with a deep understanding of how domestic and global forces shape markets and affect investments.
He regularly interviews market veterans, fund managers, economists, policymakers, and corporate leaders to provide readers with a 360-degree view of market dynamics and the broader economic landscape.
Before joining Mint, Nishant worked with some of India’s most respected business newsrooms, including The Economic Times and Moneycontrol, where he reported extensively on the stock market, corporate earnings, macroeconomic trends, GDP, inflation, monetary policies of the RBI and the US Federal Reserve, bonds, and currencies.
Apart from economics and investing, he has interests in geopolitics and emerging technologies, such as AI.