Market witnessing normal period of consolidation, says Chandraprakash Padiyar of Tata Asset Management

The expert highlighted that earnings divergences across market capitalisation are likely to increase, leading to stock selection being more important than taking general market views.

The government and the RBI have been very proactive in taking measures to improve and sustain economic growth, with steps taken on GST rate rationalisation, interest rate cuts, improving systemwide liquidity, etc.

We believe continuation of a stable policy in terms of fiscal prudence and discipline will go a long way in improving the cost of capital for Indian businesses.

The equity markets have had a very strong run consistently over the past 4-5 years.

In CY2025 and early CY2026, we are seeing a normal period of consolidation triggered by a large supply of paper in terms of IPO/QIP/PE and promoter sales, etc., along with large selling by FII investors.

Earnings growth also moderated a bit, relative to the past few years. We are constructive on the markets over the upcoming 12-24 months.

The consensus expectations for Nifty50 are optimistic in terms of profit growth over the FY26 estimates. Nominal GDP growth is expected to be around 9% to 11%. We believe expectations are reasonable and better than the profit growth delivered in FY26.

However, more importantly, we would like to highlight that earnings divergences across market capitalisation are likely to increase, leading to stock selection being more important than taking general market views.

Generally, as argued earlier, we believe stock selection will be an important variable for returns over the foreseeable future since we are likely to see wide variance in earnings growth across market caps.

If our view on divergence in earnings growth holds true, then portfolio concentration will be important to deliver better performance. Active funds have a good probability to outperform passive index funds in this environment.

We think there are good opportunities available across market caps, including mid cap and small cap segment of the market.

We would expect Banks to deliver better earnings growth and improving ROE profile. With valuations being reasonable, one can take a positive view on this sector.

Global commodity prices are moving higher; however, this price increase is not led by higher demand growth so far. One needs to watch for the sustainability of the price upmove.

The IT services sector will remain in focus on the back of progress in AI and its impact on productivity improvements.

What are your views on metal stocks amid a sharp rally in commodity prices? As mentioned above, demand growth improvement is yet to be seen on a global basis. With end product prices moving sharply higher, passing on such high prices becomes challenging, impacting demand growth and thereby prices ultimately.

One needs to be cautious and build positions only if we see demand growth picking up.

Regulatory mechanisms in India are extremely robust and have been proactively enhanced over the years.

With the booming IPO market, India is increasingly becoming one of the largest sources of capital for corporates. We remain optimistic about the Indian markets.