After trade deal, Axis AMC’s Devalkar and Naik see 2026 as year of balanced, selective equity investing

The roller-coaster start to 2026 — marked by a global commodity crash, India’s Union Budget, and the long-awaited India–US trade deal — is forcing investors to rethink traditional market playbooks, say Axis Mutual Fund’s top equity managers.

In an interaction with CNBC-TV18, Shreyash Devalkar, Head of Equity at Axis Mutual Fund, and Ashish Naik, Fund Manager at Axis AMC, said the year could shape up as a phase of normalised equity returns, healthier valuations, and the growing importance of multi-asset balance in portfolios.

With volatility rising across commodities, currencies, and equities, the fund managers believe investors must recalibrate expectations and focus on asset allocation discipline rather than chasing short-term trends.

Trade Deal Seen as the Defining Trigger for 2026

Devalkar called the signing of the India–US trade deal one of the most critical developments for equities this year, especially after prolonged foreign investor outflows.

“It has been a really eventful year so far… most importantly because of the trade deal finally getting signed,” Devalkar said, adding that the agreement was a key expectation for markets.

He noted that India is now “almost at par with peer countries as far as tariffs are concerned,” which could restart global decision-making around investments and manufacturing expansion.

“It will actually lead to the start of the decision-making process when someone from other countries wants to invest into India, set up a plant, or do business again,” he said.

2026 Starts on Stronger Footing Than 2025: Naik

Ashish Naik said 2026 has begun with better macro support compared to last year, driven by domestic demand and policy measures.

“2026 has started on a much better footing versus 2025, largely driven by domestic demand support and policy support,” Naik said.

He pointed to factors such as GST rationalisation, tax cuts, accommodative monetary policy, and benign inflation as supportive of growth.

Importantly, Naik believes the earnings downgrade cycle that dominated the last 18 months may now be bottoming out.

Balanced Investing Back in Focus Amid Global Uncertainty

Devalkar stressed that investors must move beyond an equity-only mindset, especially as global developments have pushed real assets back into the spotlight.

He highlighted the rise of the “debasement trade,” driven by concerns around the weakening purchasing power of the dollar.

“The important development has been the debasement trade, which has led to the importance of real assets as well,” he said.

That shift began with gold, moved into silver, and has expanded into broader commodities and dollar-linked assets.

As a result, Devalkar believes portfolios must now be built across multiple asset classes.

“As an investor — especially one based out of India — we need to have balanced exposure to multiple asset classes,” he said.

India Equity Still the Core, But Diversification Matters

While calling Indian equities the anchor of long-term portfolios, Devalkar said investors should complement this exposure with allocations to global and dollar-denominated assets.

“India being the fastest-growing economy, Indian equity has to be the largest portion… but in addition to that… there are opportunities by way of gold or any other dollar-denominated asset class,” he said.

Foreign equity and fixed income, he added, are increasingly important in constructing complete portfolios.

Not a Bear Market, But a Healthy Valuation Reset

On the broader equity cycle, Devalkar pushed back against the idea that Indian markets have been in a bear phase.

“I would not call it a bear market… the last two years were more of a correction of valuation excesses,” he said.

He explained that post-COVID conditions created super-normal growth in many sectors, prompting sharp re-ratings and inflated premiums.

“In many cases, valuations were upwards of 30%, 40%, 50%, even a 100% premium compared to pre-COVID… that had to get corrected,” he said.

This correction, according to Devalkar, has been a healthy consolidation rather than structural weakness.

Return Expectations Must Normalise Around Nominal GDP

Devalkar also cautioned investors against expecting the outsized returns seen during the post-pandemic rally.

“Long-term returns of any market are closer to nominal GDP growth,” he said, pegging expectations around 10% nominal growth, plus or minus a small margin.

He noted that 2024’s 20–25% CAGR returns, especially in small caps, were unsustainable and required adjustment.

“Those kinds of returns were very high, and from that standpoint, they had to get corrected,” he said.

Large Caps Attractive, Small Caps Still Expensive

On valuations, Devalkar said the correction appears closer to completion in large caps, while mid and small caps remain uneven.

“Broadly, that correction is getting closer to the end, especially in large caps… valuations are reasonable now,” he said.

However, he warned that while pockets of value are emerging, mid and small caps as a segment still trade at relatively high valuations.

Selective Opportunity in a More Normalised Market Cycle

Naik believes India’s valuation correction relative to emerging market peers has improved the country’s chances of outperforming again, provided earnings growth sustains.

“On the valuation side, we have seen a decent correction versus our emerging market peers,” he said.

The combination of macro stability, trade clarity, and earnings recovery could make 2026 a year of selective equity opportunity rather than broad-based exuberance.

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Investor Takeaway: Discipline Over FOMO

Both fund managers underscored that investor behaviour often swings between extremes — chasing equities after rallies or moving into gold at peaks — only to be disappointed when cycles turn.

In 2026’s fast-changing environment, they argue the real edge lies in balanced allocation, realistic return expectations, and selective stock opportunities after the valuation reset.

As Devalkar summed up, “The portfolio can be made complete by having exposure to all these three to four asset classes… looking at it that way is now more important in the world as it is shaping up.”

Watch accompanying video for entire discussion.