As global capital flows shift and volatility grips equity markets, investors are grappling with mixed signals — returning FIIs, resilient retail flows, yet no decisive market breakout. In this conversation, George Joseph, Chief Investment Officer at ASK Investment Managers, shares his perspective on India’s earnings trajectory, the small-cap correction, sectoral opportunities, and portfolio strategy for 2026. He explains why large caps remain his preferred bet and why patience could be the most rewarding strategy in the current environment.
India-US trade deal has brought back FIIs. But market is still not facing a sustainable rally. What explains this?
The much-awaited India-US trade came as a major relief for investors, uplifting sentiments temporarily. But this alone isn’t enough to trigger a sustained market rally. The broader markets continue to grapple with global headwinds like AI disruption fears and rising oil prices triggered by heightened geopolitical tensions. Also, trade uncertainty has resurfaced after the US court decided on tariffs and subsequent policy flip-flops.
More importantly, global equities are entering 2026 from a position of relative strength. Developed and emerging markets are benefiting from robust earnings momentum, improving growth expectations and supportive monetary conditions – creating a backdrop for capital flows. Investors are increasingly allocating to global markets, which have shown strong performance and cyclical recovery signals. In this environment, India’s earnings revival – while encouraging – faces stiff competition from global markets, limiting the immediacy of a domestically driven rally.
Yet amid these short-term challenges and relative global shifts, investors risk overlooking India’s solid long-term structural positives like corporate earnings revival, stable and growth-oriented budget and a near Goldilocks scenario: low inflation and resilient economic growth.
Our view is clear. We believe that investors must use this volatile phase to build meaningful positions in Indian equities with a two-to-three-year horizon.
Did earnings season meet your expectations, and what is the outlook going ahead?
The Q3FY26 earnings largely align with our expectations. The Nifty50 index (large caps) reported single-digit growth of ~6% in the December quarter, a clear improvement from 2% in the previous quarter. While earnings momentum strengthened in the large-cap space on a sequential basis, it was more muted in the mid-cap and small-cap space.
At ASK, we are firmly tilted towards large caps. Their relative valuation comfort, earnings stability and stronger fundamental visibility position them well in the current volatile environment. Large caps are currently trading closer to their long-term valuations, whereas the SMID segment continues to look relatively expensive.
Almost 80% of small-cap stocks are in bear grip. Do you expect this trend to reverse?
The small-cap space is clearly under pressure. But this isn’t surprising. After the scorching rally over the last two to three years, small caps continue to trade well above their long-term averages (valuations) – despite the recent correction. This, combined with higher market volatility, reinforces our cautious view in the small-cap space.
The earnings cycle reflects this as well. Small-cap earnings growth moderated to 29% in Q3FY26 – down from 37% growth in Q2FY26, signalling that the fundamental momentum which supported the earlier rally is cooling.
Given this backdrop, we do not expect an immediate reversal in this downward trend for small caps. Our preference remains firmly tilted towards large caps, where valuations are more reasonable, earnings visibility is superior, and the risk-reward is far more balanced in the current volatile environment.
Retail investors have stayed put in the range-bound market. Do you expect their conviction to pay off anytime soon?
Retail investors have shown remarkable faith in Indian equities despite a range-bound market. For two consecutive months – December 2025 and January 2026 – SIP flows have remained above ₹31,000 crore, underscoring sustained confidence and disciplined investing.
We believe that the market cycles are inevitable. The periods of volatility and muted returns are a normal part of long-term wealth creation. History shows us that such phases have occurred many times over the past decades and have been followed by strong rallies as fundamentals reassert themselves and macro headwinds ease.
In our view, investors mustn’t lose faith and use volatility to accumulate quality stocks at reasonable valuations. India’s broader setup remains supportive: low inflation, , resilient economic growth, trade deals and earnings revival collectively position the market on a strong structural footing.
Ultimately, patience and discipline are rewarded in the markets.
Metals and PSU banks emerged as the biggest winners of 2025. What is your view on the sectors that could lead going ahead?
We remain constructive on the broader banking space and within that, select PSU Banks continue to offer meaningful opportunities supported by reasonable valuations, high dividend yields, and improving profitability metrics.
We also expect credit growth to sustain at double-digit in FY26, with a further pickup likely in H2FY26 – driven by policy tailwinds and improving consumer sentiment.
In contrast, while the metal sector delivered impressive returns last year, our stance remains cautious. This sector is heavily influenced by global pricing dynamics, and Chinese oversupply concerns persist amid uncertainty around global growth. Against this backdrop, we maintain an underweight stance on metals.
How should investors allocate for a winning portfolio in 2026?
In our view, building a winning portfolio in 2026 requires conviction rather than excessive diversification. Asset allocation should remain anchored in equities, supported by the strength of India’s structural growth story, while precious metals play a complementary role amid persistent global uncertainties. Within equities, the emphasis must be on a clear market-cap strategy: a decisive tilt toward large caps, where valuations are relatively attractive, and earnings visibility remains strong, complemented by selective exposure to microcaps for investors with a long-term horizon of 5–7 years, given their illiquidity and higher risk. Ultimately, disciplined stock selection—focused on high-quality businesses and a concentrated approach—will be the key driver of outperformance as markets become increasingly selective and dispersion in returns widens.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
