In this edition of ETMarkets Smart Talk, Rohit Agarwal, Executive Vice President and Senior Fund Manager at Kotak Mahindra Life Insurance, shares his perspective on why the upcoming Budget may offer relief on capital gains taxation, how measured expectations could leave room for positive surprises, and what this means for market sentiment, domestic flows and sectoral positioning in 2026.
Speaking to Kshitij Anand of ETMarkets, Agarwal said the market is entering the Budget cycle with measured expectations after a phase of muted returns, creating scope for positive policy developments. Edited Excerpts –
Q) We are hovering near record highs, but geopolitical concerns have also increased. How do you see the year panning out – your mantra for 2026?
A) Geopolitical risks are likely to remain for now. We are already seeing this reflected in the movement of gold and other safe haven assets.
As a result, Indian equity markets may continue to stay volatile. In addition, the pending trade deal with the USA, which has been getting delayed for various reasons, could also keep market sentiment uncertain in the near term.
Q) We will be starting with December quarter earnings soon – what are your expectations?
A) The December quarter earnings are expected to show single digit growth on a year-on-year basis, which is primarily in line with market expectations.There is some positive sentiment in a few sectors because demand is improving after the recent GST cuts. The depreciation of the rupee is also expected to give a temporary boost to the margins of IT companies, although this may not last in the long run as their pricing eventually gets adjusted.
Q) What are your expectations from Budget 2026?
A) The market is entering the Budget cycle with measured expectations, which leaves room for positive developments.
After the muted returns of the Indian market in the past few months and the submissions made by foreign institutional investors on capital gains taxation, there is a possibility that some relief may be considered.
Foreign investors have been arguing that the current method of taxation is very complex, so market participants are expecting some announcements.
Apart from this, the market expects the government to meet its fiscal deficit target for the year. The government is also expected to shift its focus from fiscal deficit to the debt to GDP ratio and the market expects an announcement on the glide path towards bringing the debt to GDP number below 50%.
Q) Domestic SIP inflows have been a buffer against foreign sell-offs in 2025. How do you see the story unfolding in 2026?
A) Domestic SIPs have been rising steadily even when the markets have been rangebound. This shows that investors are looking at SIPs as a long-term approach.
People are also not churning their SIPs or switching funds aggressively anymore. We believe the SIP trend will continue and we do not see any clear reason for SIP numbers to decline sharply in 2026.
Q) Rupee@90 – are we on our way for Rs 100 per USD in this year. What is driving rupee depreciation, and should investors be worried?
A) The rupee at 90 has provided some relief to exporters who were facing pressure from tariffs. If we look at the Dollar Index, it has moved down during the year, which means the dollar has weakened against other major currencies.
However, it has strengthened against the Indian rupee. We believe there is a good chance of a reversal in the USD INR rate once the trade deal with the United States is signed.
The Reserve Bank may have also allowed the rupee to move lower in a controlled way to offset some of the impact of the tariffs. On an inflation adjusted basis, the Indian rupee is now undervalued against the US dollar and we expect part of this to correct once the trade deal goes through.
Q) Which sectors are likely to do well in 2026 – or sectors where investors can raise their weightage in their portfolio?
A) Private sector banks are expected to do well in 2026. In 2025, given that we were in a declining interest rate environment, NBFCs had an advantage.
Their liabilities were getting repriced faster, while many of their loans were already written at fixed rates, which supported their margins. Private sector banks, on the other hand, grew at a slower pace as they faced margin pressure.
This was because their assets were repricing faster than their liabilities, since a large part of their loan book is on a floating rate basis.
Now, with the rate cut cycle close to its end and an expectation of one more cut either in February or April, private banks are likely to shift their focus back to growth.
This should help them deliver mid teen operating profit growth as margins are also nearing the end of their decline. Since NBFCs have already done very well in 2025, we expect the trade to gradually move towards private sector banks as 2026 progresses.
Q) Indian govt projected economic growth of 7.4% in fiscal 2025–26. Nominal GDP, which counts inflation, is expected to grow by 8% in the current fiscal, against 9.7% last year. What is your take amid geopolitical concerns and trade wars?
A) The Indian government has taken several steps to support growth, including large GST rate cuts to revive demand. We can already see the impact of this, as demand has started to come back.
At the same time, the RBI has ensured that there is enough liquidity in the system. The banking system is now in a liquidity surplus position, which has helped credit growth move up by around 200 to 300 basis points from below 10 percent.
The combined effect of liquidity support and rate cuts, along with low inflation, has helped the economy hold steady even with higher tariffs from the United States.
As a result, we believe India should be able to maintain growth of around 6 to 7 percent. Nominal GDP growth should also move closer to 10 percent or even higher as inflation starts to pick up in the second half of the year.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
