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ETMarkets Smart Talk | Time correction in valuations has made Indian markets attractive again: Harshad Patil
While headline indices managed to hit fresh highs, the past year also delivered a meaningful time correction that has made risk-reward more attractive for investors.
In an interaction with Kshitij Anand of ETMarkets, Harshad Patil, Chief Investments Officer, Tata AIA Life, shares his outlook on market valuations, key growth drivers such as manufacturing and digitisation, and how investors should approach diversification across market caps in the year ahead. Edited Excerpts –
Q) Thanks for taking the time out. What a year it has been for equity markets. A year has ups and downs, but we managed to hit fresh highs in December. How are you looking at 2026 from a market standpoint?
A) Indian equity markets have had to navigate through heightened volatility in the past 12-18 months ranging from geo-political issues to elevated U.S. tariffs. In that context, performance of headline indices has been quite satisfactory.
We believe that a slew of fiscal and monetary policy measures undertaken by the Government as well as the RBI would sustain the economic momentum in 2026.
A meaningful rationalization in income tax slabs and GST rates should give a boost to consumption across a host of categories, and the ample liquidity and lower lending rates should spur investment demand in the economy.
We believe that these factors along with a time correction in valuations bodes well for the Indian equity markets in 2026.
Q) Any big learnings from the year 2025 you want to highlight for our readers?
A) Market is a great humbler. We are constantly learning each day. We would not have expected that with such turbulent geo-politics and high tariffs, NIFTY 50 would still manage a positive return over the past twelve months.
Q) What could be the big bottlenecks or factors one should watch out for that could put brakes on bulls as we step into 2026?
A) We would be closely watching for any positive developments around the possible U.S. India trade deal.
Any delay on this account can result in a headwind to the economic momentum as some of the impacted sectors due to high tariffs are labour intensive sectors.
Additionally, if there is an overall global slowdown on the back of global trade shocks or inflation surge, it would affect all economies and, in that scenario, the Indian economy will not be immune.
Q) Which sectors are likely to take leadership positions in terms of earnings in 2026?
A) We believe manufacturing and digitization are key themes for the next decade for India. For a sustained 7-8% GDP growth trajectory, a large proportion of our consumption basket needs to be indigenized, and this will open many opportunities in manufacturing apart from being a catalyst for the overall economic growth.
Along with Services, Manufacturing will add a key pillar to growth by supporting employment even as digitization will ensure efficiency and increase in productivity.
Q) In the recent rally – Large-caps led gains while mid-caps and small-caps lagged – how should investors play the broader market theme in 2026?
A) Markets usually tend to move in cycle with each segment performing at different points of time. That said, small cap performance has been tepid over the last twelve months, recording negative double-digit returns.
We can see some trend reversal as earnings of small-cap companies catch up from the low base of last year and valuations become reasonable.
We recommend investors to participate in a diversified portfolio to benefit from the long-term compounding of returns across the market cap curve.
Q) How are we placed in terms of valuations compared to our peers as we step into the new year?
A) Indian markets have given modest returns over the past 12-18 months and have significantly underperformed most DMs and EMs over this period.
We believe this time correction along with expected acceleration of earnings over next 12 months, have made valuations attractive.
Q) As diversified equity exposure becomes more relevant in a concentrated market, how should investors evaluate broad market products such as Nifty 500 based funds? How do you see such approaches supporting long term wealth creation in 2026 and beyond?
A) We have seen markets going through cycles with large cap having outperformed mid/small caps and vice versa. Multi Cap Opportunities Fund provides a diversified exposure to an investor across the market capitalizations at all points of time.
We believe that a long-term investor will benefit from this diversification across select stocks, largely in the overall NSE 500 universe without being concerned about these cycles.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
