Expert view on markets: Prashasta Seth, CEO of Prudent Investment Managers LLP, believes global markets may correct in 2026 due to the sharp uptrend in new technology and AI-related stocks. On the other hand, the Indian stock market may outperform, but a delayed India-US trade deal and weakness of the Indian rupee remain key risks. In an interview with Mint, Seth discussed the outlook for global as well as the Indian stock market for the coming year, themes that may generate alpha and the trends in HNI investment. Here are edited excerpts of the interview:
Tech stocks have soared this year globally. Do you see the possibility of a major correction in global markets next year?
It is highly possible that there will be a major global correction in 2026, given the sharp up move in new technology and AI-related stocks this year.
Traditionally, substantial repricing has been followed by areas of excessive optimism since market valuations have often risen well ahead of actual profit visibility.
Several companies with an AI theme have enjoyed a double-digit rise in recent weeks, despite the fact that AI only accounts for a small fraction of their current sales.
When price growth surpasses company fundamentals by this amount, markets usually see a 10–20% correction as investors reassess commercial viability and expectations return to normal.
The macroenvironment of the world is still precarious: many major economies continue to have high debt-to-GDP ratios, geopolitical tensions are elevated in various areas, and inflation in many nations is well over central bankers’ comfort zones.
Risk-off sentiment might quickly result from any decline in these parameters. Even a mid-double-digit decline in the overall market would be a fair and normal recalibration given the extent of the outperformance in new technology this year.
Following the very sharp increase, long-term investors may re-enter premium tech firms at more affordable valuation levels.
Since India is not a big AI-play, can we expect outperformance in the Indian stock market next year in case of a global correction?
India is unlikely to move in the opposite direction during a global correction, but its relative outperformance remains highly probable because the economy is anchored by strong domestic fundamentals.
Nearly 60% of GDP driven by consumption, around 50% contributed by services, real GDP growth in the 6–7% range, and limited dependence on AI-linked sectors that form well below 5% of market capitalisation, allowing it to typically correct less (around 5–10% during past global drawdowns of 10–15%) while maintaining support from manufacturing momentum, infrastructure expansion, and steady domestic inflows, even as global tech-heavy indices like the NASDAQ, where AI-linked companies can make up 25–30% of weight, remain more vulnerable.
Indian markets have substantially underperformed the global markets in the last one year, and this move has brought the Indian premium to the emerging markets to the normal levels as opposed to the life high premium India commanded in 2024.
Additionally, with the rate cuts, good monsoons, cut in GST, labour reforms by the government, we think 15% earnings growth is possible in FY27. This should drive the returns over the next 12 months.
The biggest risk to the above is continued delays in the India-US trade deal and its consequent impact on India’s exports.
Unlike China, which has been able to diversify its exports and has ridden out the bump, Indian merchandise exports have stuttered, resulting in an increase in the current account deficit.
The falling rupee as a result of this is also a factor that has accentuated the pace of foreign outflows.
What are the key themes globally that can generate alpha over the next one to two years?
Underpinned by geopolitical tensions and structural shifts in international trade, a number of global themes emerge that are anticipated to be the main drivers during the next 12 to 24 months.
Local manufacturing, supply-chain independence, and domestically created capability begin to take centre stage in the thoughts of nations as the deglobalisation movement quickens.
This generates substantial potential in a variety of businesses pertaining to automation, specialised parts, and advanced manufacturing methods.
Additionally, countries are being pushed to invest more in strategic technology by the geopolitical conflicts in different regions.
In a similar vein, nations want to become leaders in technology and reduce their reliance on foreign suppliers.
Advanced electronics, robotics, drone systems, and defence-tech would, therefore, be important focus areas that could well return strong alpha as funding rises along with R&D and policy support in the next cycle.
Deglobalisation is giving rise to localised supply-chain themes. Strategic tech, such as defence, robotics, drones, and high-value electronics, is likely to increase demand for automation, reshoring initiatives, and digital manufacturing tools as companies shift toward more resilient operating models.
These are part of a broader structural rebalancing that we believe is likely to frame alpha opportunities over the coming years.
Where is smart money moving now?
Smart money is now cautious, discreetly getting ready for the next market cycle while simultaneously embracing safety.
Investing in companies with strong fundamentals, steady cash flows, and sound balance sheets is still popular, of course.
However, seasoned investors are actively searching for pockets of opportunity generated by the catastrophe in small and mid-caps, pushing many fundamentally good companies to very appealing levels when the world goes crazy.
After many years, this correction has finally added some value to the market, even though headline valuations for the whole market are still high.
For the first time in a long time, several microcaps have attained appealing levels.
Instead of following momentum, smart money is progressively building positions in these prospects in the hopes that market sentiment and earnings visibility will eventually improve.
It’s difficult to time some of these things, and it takes some time to play out, but we think money in the medium term will be made in the microcaps, even though they might see pain in the short term.
A disciplined approach focused on long-term compounding rather than short-term speculating is reflected in this combination of prudence and selective aggression.
There is a rising demand for PMS and AIFs from tier-2 and tier-3 city investors. What is behind this development?
This is because the demand for PMS and AIF products has gone up meaningfully from tier-2 and tier-3 city investors, since wealth creation is no longer restricted to metros.
Economic activity has expanded steadily in these cities, creating a pool of investors with larger surpluses, whose aspirations extend beyond traditional instruments.
Financial awareness, too, has gone up considerably, facilitated by digital platforms, and the offerings of PMS and AIF are more accessible than ever.
More importantly, referral networks and community trust in smaller cities also play a significant role, and investors often rely on word-of-mouth recommendations before making financial decisions.
Consequently, PMS and AIF providers, which operate customised and relationship-driven models by their very nature, stand to strongly benefit from this behaviour.
Indeed, current business expectations again reflect this, with almost a third of new business set to emanate from non-Tier-1 cities- a testament to the emerging scale and depth of wealth in the regions.
With these investors increasingly demanding personalised portfolio management rather than mass-market products, the adoption of PMS and AIFs continues unabated.
What drives the proliferation of boutique AMCs?
This proliferation of boutiques is a consequence of how the Indian investment landscape has evolved over two decades. Rising investor awareness and strong regulatory intervention have reshaped the industry.
As the number of folios and AUM grew manifold over the last 20 years, there was a push from the regulator for standardisation, cost cuts, and transparency in operations. The changes benefited the mass market but ultimately made large AMCs fairly standardised in their product offering.
Boutique AMCs have come in to fill the resulting gap for differentiated, high-conviction strategies that large institutions, because of their scale, coupled with the desire of the regulator to minimise risks for the mass market, cannot always execute.
Most importantly, HNIs have moved towards boutique managers because such investors like highly customised portfolios, sharper investment themes, and direct access to decision-makers managing their wealth.
Bank-led AMCs, which are relatively large, often work with rigid mandates influenced by volumes and distribution pressures.
This prevents them from offering the nimbleness or personal engagement HNIs demand.
The outcome is that savvy investors prefer boutique firms because they combine specialised expertise with deeper fund-manager involvement-qualities which mass platforms cannot consistently deliver.
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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.
