ETMarkets Smart Talk: ‘Too Old to Rally, Too Young to Fall’ - Kedar Kadam on navigating markets in FY26

In this edition of ETMarkets Smart Talk, we caught up with Kedar Kadam, Director – Equities: Asset & Wealth Management at Dolat Capital Markets, to decode the evolving landscape of Indian equities in FY26.

Using the phrase “Too old to rally, too young to fall”, Kadam describes the market’s current phase—no longer in a euphoric bull run, yet far from a bearish downturn.

With valuations stretched and global liquidity tightening, he expects muted returns ahead but sees opportunities in smart stock picking, sector rotation, and disciplined portfolio management.

From macro risks and the impact of upcoming policy decisions to the outlook on smallcaps, gold, and fixed income—Kadam lays out a balanced roadmap for investors navigating through a maturing yet resilient market cycle. Edited Excerpts –

Q) Thanks for taking the time out. Nifty closed with marginal gains in June, but for the first six months of 2025 – it is up over 7%. How do you see markets for the rest of FY26? Any big events to watch out for?

A) In my view markets appear to be entering a “middle-aged” phase, no longer in a euphoric, risk-on rally (“Too old to Rock ’n’ Roll”), but still supported by steady fundamentals (“Too young to die”).

With valuations elevated and global liquidity tightening, upside may remain limited. However, stable earnings, a resilient macro outlook, and expected rate cuts reduce the risk of a sharp correction.

Through the rest of FY26, investors should brace for muted returns, sector rotation, and pockets of volatility, with stock-picking likely to outperform index-based strategies. Key events & risks to watch for include:

A) Global Uncertainties: Trade tensions (U.S.–China/India tariffs), Fed policy shifts, and global inflation trends could disrupt foreign portfolio flows and market sentiment.

B) Domestic Triggers: RBI policy reviews (quarterly) will influence rate trajectory. The Union Budget (Feb–Mar 2026) may bring fiscal reforms and capex allocations, potentially spiking volatility.

C) Macro Data & Monsoon Trends: Inflation (especially food), industrial output, rural demand, and monsoon performance will steer market direction and RBI policy response.

Q) How are you managing the volatility in your portfolio? Any key learnings which you would like to share from 1H2025?

A) In the first half of 2025, we focused on staying disciplined amid volatility, prioritizing quality stocks, staggered entry, and sector balance. Domestic-focused sectors like financials and capital goods provided stability, while global-facing names were trimmed or approached selectively.

A key learning was to stay anchored to fundamentals and use pullbacks to build high-conviction positions. Staggered buying, flexibility and a focus on, risk-adjusted returns remain central to our approach for the rest of FY26.

Q) One of the reports suggested that India Inc.’s profits have grown nearly 3x faster than GDP since FY20. What structural factors are driving this divergence?

A) Well, the profit growth outpacing GDP reflects a combination of improved business fundamentals, sectoral evolution, and structural reforms, signaling a maturing corporate sector delivering value beyond macroeconomic growth alone. The factors driving this surge include:

A) Corporate efficiency & consolidation

B) Sectoral shift towards High-Margin Industries

C) Digital adoption & innovation

D) Favourable macroeconomic policies

E) Global integration & exports

Q) With the China+1 theme gaining traction, which Indian sectors are best placed to attract global capital and scale?

A) With the China+1 strategy gaining traction, India’s electronics manufacturing, pharmaceuticals, automobiles (especially EVs), textiles, IT services, renewable energy, and logistics sectors are best positioned to attract global capital and scale.

Government incentives like the PLI scheme, cost competitiveness, strong engineering capabilities, and improving infrastructure make these industries attractive alternatives to China.

This diverse set of sectors combines manufacturing scale, technological strength, and sustainability focus, aligning well with global supply chain diversification and investment trends.

Q) How is fixed income as an asset class looking for long term investment. How much money one should allocate as hedge to combat volatility?

A) Fixed income is key for long-term investors seeking income stability and risk reduction. The domestic inflation has come down quiet sharply in recent months and as a result RBI has already cut the benchmark rates by 100 BPS to 5.5%.

This has led to moderation in domestic bond yields, though they are still attractive for steady income and capital preservation. Despite inflation and policy risks, fixed income serves as a reliable hedge against equity volatility.

Typically, 20–40% of a portfolio should be in fixed income, more for conservative investors, less for those focused on growth to help smooth market swings and protect capital.

Q) Which sectors are likely to remain in spotlight in 2H2025?

A) In 2H 2025, key sectors to watch are financials, capital goods, consumer discretionary, renewable energy, and pharmaceuticals driven by rate cuts, government capex, strong demand, and sustainability trends.

Q) Can we say that we are in a "stock picker’s market" ahead. If yes, what are the key traits investors should look for in FY26 picks?

A) Yes, FY26 is shaping up to be a “stock picker’s market” as broader gains remain muted and volatility persists. Investors should focus on companies with strong fundamentals, sector tailwinds, pricing power, competitive advantages, and quality management.

Valuation discipline is also key to avoid overpaying. This selective approach will help uncover opportunities that can outperform in a challenging environment.

Q) Gold has also seen a tremendous run in 2025 – how do you see the yellow metal shining in 2H2025? Time to book profits or add on dips?

A) Gold’s strong 2025 run highlights its role as a safe-haven amid uncertainty and inflation. In 2H 2025, it remains a key diversifier and volatility hedge, though central bank easing may temper gains.

A balanced strategy taking partial profits at highs and adding on dips can help capture upside while managing risk.

Q) How should one play the small & midcap theme? Has the profitability improved compared to largecaps – what does the data suggest?

A) To play the small and midcap theme, focus on quality companies with strong earnings growth and sustainable models. While many have improved profitability post-pandemic, margins and balance sheets are generally weaker than large caps.

Select midcaps with niche leadership can outperform, but careful stock picking and monitoring are essential due to higher risks.

Q) Any sector which is running out of steam and investors should carefully pare their positions?

A) As I said earlier, stock selection is crucial going forward since broad-based sector rallies are unlikely. The risk-reward will hinge on individual company fundamentals, return ratios, and valuations.

It’s wise to avoid narrative-driven stocks and those trading at euphoric valuations to manage downside risks effectively.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)