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India’s equity markets may have witnessed heightened volatility in recent months, but the broader structural narrative remains firmly intact, believes Raghav Iyengar, CEO of 360 ONE Asset.
In this edition of ETMarkets Smart Talk, Iyengar highlights that as macro uncertainties gradually recede, leadership is likely to emerge from domestically driven sectors such as financials, manufacturing and consumption.
With improving earnings visibility, supportive liquidity conditions and India’s strengthening position in global supply chains, he argues that 2026 could mark a phase where structural growth themes take centre stage over short-term market noise. Edited Excerpts –
Q) We have seen a rollercoaster ride in markets with wild market swings on either side post-Budget. How do you see markets in the near term?
A) The recent volatility reflects the confluence of multiple macro developments, and such phases are a natural part of market evolution. What is encouraging is the policy direction, measured fiscal discipline alongside a continued push on manufacturing, infrastructure and announcements of external trade partnerships. That combination provides businesses with greater clarity and operating confidence.
In the near term, we expect markets to be shaped more by earnings visibility than valuation re-rating. We're seeing a recovery in system credit growth, improving liquidity, and the RBI taking a supportive stance. Consistent domestic flows and strong, underlying fundamentals support a constructive outlook despite the recent choppiness.
Market swings are part of a longer growth journey. For long-term investors, such phases often reinforce discipline and lay the foundation for sustained wealth creation.
Q) With the Budget, trade deal out of the way as well as the MPC, what are the next big triggers that D-Street investors can look forward to?
A) Going forward, the key triggers will be earnings execution and sectoral developments rather than macro announcements.
Investors should watch out for a broad-based consumption recovery as inflation moderates and credit conditions ease. The trajectory of credit growth, progress on manufacturing initiatives, and management commentary on order books and demand as quarterly results unfold will offer valuable signals on underlying momentum.
Equally important will be developments on trade partnerships and the pace of infrastructure execution. The shift from government-led capex to private consumption as the growth engine will be a central theme to track through the year.
Q) What is your take on the December quarter earnings, which have come through? Are we seeing green shoots?
A) Yes, we are beginning to see early green shoots, though the recovery is uneven across segments. Encouragingly, earnings momentum within the mid-cap space has stabilised after a prolonged phase of downgrades, signalling that expectations are becoming more grounded and constructive.
Sectorally, we're seeing upgrades in Metals, PSU Banks, Real Estate, and Auto sectors. The financial sector balance sheets remain healthy overall, with only limited pockets of stress in PSBs and private banks.
Importantly, the earnings trajectory is normalising after a period of unusual resilience during FY22-24. In many ways, this reset is healthy, as it aligns expectations more closely with underlying fundamentals.
As sectoral momentum broadens and financial conditions remain supportive, we believe earnings visibility should improve through the year.
Q) Which sectors are likely to remain in the limelight in 2026, post-Budget, trade deal, etc.?
A) Given the current macro backdrop, we're looking positively on domestically focused sectors over those dependent on global dynamics, as internal fundamentals provide greater resilience amid international uncertainties.
Financials may benefit as the credit cycle strengthens and balance sheets stay healthy. Consumption and discretionary segments are positioned to improve as inflation moderates and demand gradually normalises.
Manufacturing is a structural theme, supported by supply chain realignment and sustained policy emphasis on building competitive capacity. With the recent trade arrangements, India is one of the most attractive manufacturing destinations under the China+1 strategy.
Auto and ancillaries are interesting given the commercial vehicle cycle at inflection and recovery in passenger vehicles. Metals have tactical appeal given improving fundamentals and the demand uptick we're seeing. Communication services also look attractive given the sector consolidation trends and infrastructure monetization opportunities.
Q) Any theme that you think looks overheated now
A) Some pockets in the small-cap space seem stretched. Earnings growth moderated in H1FY26 with sharper downgrades, yet valuations haven't fully corrected. Certain names in construction, infrastructure, textiles and retail are seeing downgrades. The key is avoiding the temptation to chase momentum in areas where the risk-reward appears unfavourable.
Themes that are purely value-driven, lacking underlying quality, may face headwinds in such an environment.
Q) How should one play the small & midcap theme this year?
A) The environment calls for far greater selectivity. Broad-based beta is unlikely to deliver the same outcomes; disciplined stock selection will matter more than ever.
Midcaps appear relatively better placed, with earnings trends stabilising and visibility improving, while parts of the small-cap universe still require greater scrutiny. The emphasis should remain on businesses with resilient balance sheets, durable earnings visibility and management teams with a demonstrated ability to execute across cycles.
Allocations to mid- and small-caps must be aligned with an investor’s risk profile and time horizon.
Quality and discipline, not momentum, will define outcomes in this phase. Consider seeking professional advice to ensure your portfolios remain aligned with long-term objectives.
Q) How are we placed in terms of valuation among other EM players?
A) India does trade at a premium to other emerging markets, but this premium is justified by our structural advantages. We have a superior growth trajectory and a more robust domestic demand story, reducing dependence on volatile global trade flows.
The real GDP growth of 7.4% YoY in FY26 , driven by manufacturing growth of 7% and services growth of 8.8% , is significantly ahead of peer EMs. Our macro stability is reflected in a stable current account deficit, subdued inflation in December, and fiscal consolidation provides a differentiated risk profile.
The recent trade agreements, including the India–US deal and the EU FTA, meaningfully strengthen India’s position in the evolving global supply chain landscape. With competitive tariff structures and trade partnerships across key developed markets, India has positioned itself advantageously for corporations seeking to diversify supply chains away from China.
The question isn't whether India deserves a premium; it's whether that premium should expand or
contract. Given an improving earnings trajectory, resilient domestic flows, and potential FII flow recovery as the rupee stabilises, we believe the premium is sustainable at current levels.
Q) How are FIIs looking at India? We are seeing some buying coming back towards Indian equities.
A) FII sentiment appears to be gradually improving. The Budget's manufacturing focus and customs duty reductions resonate with long-term foreign investors.
India’s equity markets are far less dependent on external capital, with strong domestic participation – DIIs bought $7.6 billion in January – providing stability. Any sustained return of foreign inflows would be incrementally positive, especially for large-cap segments, but the structural story remains intact irrespective of short-term flow cycles.
Q) Tell us more about the new SIF, DynaSIF Equity Long–Short Fund which was launched recently.
A) We recently launched the DynaSIF Equity Long-Short Fund, which represents an innovative product at the intersection of mutual funds and alternatives. The NFO opened on February 6th and closes on February 20th, 2026.
This is a Specialized Investment Fund (SIF)—a new mutual fund category designed in line with the SEBI framework for sophisticated investors with a minimum investment of Rs 10 lakhs. What makes it unique is that it combines the tax efficiency and transparency of mutual funds with the flexibility and strategy sophistication and flexibility of alternatives.
The fund is an open-ended equity strategy with an 80-100% allocation to equities, with the added flexibility of taking limited short positions up to 25% through equity derivatives.
With this long-short approach, our strategy aims to generate risk-adjusted returns in the long term in three ways: by selecting better stocks on the long side, by shorting faltering businesses, and by using derivative strategies like covered calls to generate yield.
A unique differentiator here is the ability to benefit across market cycles—through stock selection in bull markets, shorting and hedging in bear markets, and derivative yields in volatile or flat markets.
DynaSIF Equity Long-Short Fund: An open-ended equity investment strategy investing in listed equity and equity-related instruments, including limited short exposure in equity through derivative instruments.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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