Ssuneet Kabra, co-founder and CEO at Equitree Capital, believes the stock market is gradually repricing uncertainty, and such phases tend to create wealth for the patient investors. In an interview with Mint, Kabra also discussed the impact of AI on tech companies, narratives on India’s growth, and FIIs. Edited excerpts:
Why is the market swinging between gains and losses?
The volatility we are seeing is primarily sentiment-driven and is disconnected from the underlying fundamentals of corporate India.
On the negative side, the overhang of the US-Iran war and global tariff uncertainty have been the dominant factors.
Even after the US Supreme Court struck down the IEEPA tariffs in a 6-3 ruling on February 20, the situation remains fluid.
Trump invoked Section 122 of the Trade Act within hours to impose a fresh 15% global tariff, and while India’s exposure has dropped meaningfully from the earlier 50% reciprocal rate to a more manageable 15%, the uncertainty around the path forward is weighing on sentiment.
Domestically, Q3 FY26 showed pockets of earnings pressure, particularly in working-capital-intensive and commodity-exposed businesses.
On the positive side, the fundamental picture holds up well. Across the BSE 500 universe, median EBITDA growth came in at 15% in Q3 FY26.
The picture gets more interesting at the segment level — small caps delivered 17% operating profit growth in the quarter, mid caps 16%, and large caps 16%.
Over the past 9 months, mid-caps have expanded operating profits by 15%, broadly in line with the broader BSE 500’s 13%. These are healthy numbers.
Rural demand is recovering, festive consumption provided a tailwind, and the RBI’s GDP growth estimate for FY26 stands at 7.3%.
The market is gradually repricing uncertainty, and in our experience, such phases tend to create wealth for the patient investors.
It is difficult to discount the impact of AI on tech companies. Does it mean the sector remains an avoid for retail investors?
This is not a binary call. AI is unambiguously disrupting the traditional IT services model — managed services and application maintenance, which account for 22–45% of revenues for leading Indian IT firms, face meaningful pricing deflation as agentic AI matures.
Jefferies’ recent downgrade of several large Indian IT names reflects this structural concern, and the Nifty IT index is down nearly 20% year-to-date in FY26. However, writing off the sector entirely would be premature.
Indian IT firms are deeply twitter-tweetded in enterprise technology workflows — clients cannot simply migrate overnight from a TCS or Infosys to an AI model.
Near-term, AI represents a margin headwind, but in the medium term, it opens a $300–400 billion opportunity in enterprise AI integration, where Indian companies have a structural advantage in delivery capabilities and client relationships.
Retail investors should approach selectively: favour companies with clear AI strategy, strong deal pipelines, and meaningful revenue diversification, rather than making broad sector bets. This is a transition phase, not an extinction event.
Is the narrative of India’s growth losing its charm?
The India growth story is not fading. What is happening is a valuation and expectation reset after a period of exceptional re-rating. GDP growth for FY26 is estimated at 7.3% by both the IMF and the RBI, making India the fastest-growing large economy in the world.
The Economic Survey projects nominal GDP growth of around 10% for FY27.
Yet markets are struggling to rally, and there are two reasons for that.
First, corporate earnings delivery in select pockets has been uneven in the near term. Q3 FY26 saw margin pressure from commodity costs, state election-driven disruption in government-linked businesses, and one-off provisioning items.
Second, global capital allocators are navigating a genuinely complex macro environment, with ongoing geopolitical volatility and tariff uncertainty making them more selective about risk.
The nine-month picture tells a more constructive story. On a 9MFY26 basis, median EBITDA growth across the BSE 500 came in at 13%, with mid-caps delivering 15% and small-caps 13%.
Even the Nifty 50 universe clocked 11% operating profit growth over nine months.
As tariff uncertainty settles, the RBI’s easing cycle plays out, and rural consumption recovers broadly, the earnings trajectory is well set to re-accelerate in FY27.
India’s structural story remains among the most compelling in the world. Near-term volatility in sentiment should not be read as any change in that underlying reality.
How do you see the FII trend unfolding in the coming months?
After sustained selling through much of FY25 and early FY26, valuations in Indian equities have corrected to more reasonable levels.
More importantly, a few key developments have shifted the calculus for foreign investors.
The RBI’s rate-easing cycle, which began with a 25 basis point cut that took the repo rate to 6.25%, improves the relative attractiveness of Indian risk assets.
And global expectations of Fed rate cuts are beginning to redirect capital toward emerging markets, with India well-positioned as a preferred destination given its macro stability and growth premium.
Monthly SIP inflows have crossed ₹30,000 crore, providing a structural cushion that limits downside even during periods of FII outflows.
We expect FII buying to be episodic and sector-specific in the near term, with financials, domestic consumption, and infrastructure-linked businesses attracting the most interest as the macro picture clears.
Why are PSU banks outperforming private peers? Is there more steam left in them?
PSU banks’ outperformance is rooted in a combination of fundamentals and valuation re-rating that has been building over the last two to three years.
On fundamentals, public sector banks collectively reported their highest-ever quarterly profits in Q3 FY26, with earnings growing 17.5% year-on-year to ₹52,603 crore.
Credit growth for PSU banks exceeded 14.5% year-on-year, meaningfully outpacing private bank growth, which remained below 12%.
Asset quality has transformed — the average gross NPA ratio for PSU banks has improved to around 2.27%, a level unimaginable five years ago. That balance sheet repair is the fundamental driver of the re-rating.
On valuation, despite the rally, the Nifty PSU Bank index still trades at approximately 1.6 times book versus large private banks at 3.3 to 4 times.
That discount is difficult to sustain for comparable return profiles.
Private banks, meanwhile, are navigating their own set of pressures — aggressive expansion in retail unsecured credit over the past two years is showing early signs of stress, and NIM compression as the rate cycle bottoms will disproportionately impact banks that relied on high-yield retail lending.
PSU banks, with more granular deposit bases and lower credit-to-deposit ratios, are better positioned through this phase.
Much of the easy multiple re-rating has been captured, but the incremental case for PSU banks now rests on earnings compounding, which remains a reasonable and credible place to be.
What are the sectors in the mid and small-cap segments that you are positive on for the medium term?
The recent correction across mid, small, and micro caps should be viewed as a healthy consolidation following a liquidity-led re-rating, rather than any structural weakness in earnings.
Growth across the segment has remained resilient, with many businesses continuing to deliver mid-teens operating expansion despite volatility in sentiment.
Valuations have normalised meaningfully, while the macro backdrop is turning supportive — with easing inflation, the beginning of a monetary easing cycle, improving rural liquidity, and sustained public and private capex.
These conditions typically create a strong operating environment for emerging businesses that are more sensitive to domestic demand and incremental investment cycles.
Our constructive stance is centred around manufacturing, infrastructure and engineering, and consumption-linked businesses.
Domestic manufacturing continues to benefit from supply chain diversification, PLI-led investments, and rising capacity utilisation, creating multi-year growth visibility for niche industrial players.
Infrastructure and engineering businesses are seeing improving order books driven by government capex, energy transition investments, and private sector project revival, with operating leverage likely to support earnings acceleration.
On the consumption side, early signs of rural recovery, premiumization trends, and distribution expansion are creating opportunities for scalable mid and small-cap franchises.
While near-term volatility may persist, the combination of earnings visibility, stronger balance sheets, and valuation comfort keeps the broader segment well positioned for selective outperformance as growth momentum strengthens into FY27.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
