AI boom, tariffs and a softening labour market shape a cautious 2026 outlookIndian equity markets may be hitting fresh highs, but investors looking for sustainable sectoral opportunities must stay selective, says Gautam Duggad, Head of Research and Director-Institutional Equities at Motilal Oswal. Speaking to ET Now, Duggad noted that while Q2 earnings signalled a potential inflection point, not all outperformers will sustain their momentum.
Duggad highlighted that cyclicality remains the biggest challenge in sectors like oil and gas and cement.
Oil and gas earnings for Q2 looked strong, but the surge was largely driven by three OMCs. Adjusting for them, profits were actually down 4% on Motilal Oswal’s coverage universe.
“Profitability in oil and gas is dependent on crude prices, government policies, and global spreads. Predictability is very low,” he said.
Cement, however, offers relatively better visibility.
“FY26 is shaping up to be a strong year for cement, supported by improved balance sheets, deleveraging, and robust demand from infrastructure and housing. While cyclicality remains, predictability is higher than oil & gas or metals,” Duggad added.
On whether India offers an AI-driven investment opportunity, Duggad cautioned against forcing comparisons with global markets.
“There are no direct AI plays yet in India’s listed universe. Investors may get opportunities in five to ten years as the ecosystem matures,” he said.
He added that themes evolve with economic size, much like how India saw insurance, AMC and platform companies list only after 2016.
“For now, investors can only play AI indirectly through power, data centre infrastructure or ecosystem enablers — but not pure AI companies.”
Duggad noted that Q2 marks the first quarter in nearly a year without earnings downgrades.
“Sectors like oil & gas, cement, capital goods, telecom and chemicals delivered strong showings. After five quarters of downgrades, we actually saw upgrades this time.”
While valuations in midcaps and smallcaps remain elevated, he said the broader correction over the last year has brought pockets of the market closer to fair value.
