'We expect Nifty earnings to improve into the mid-teens'

Summary: After a volatile start to 2026, are Indian equities finally finding balance? Shibani Kurian shares why she prefers large and mid caps over small caps right now, how earnings could drive the next phase and what truly shapes her bottom-up stock picks in a selective market. After a volatile start to 2026 and an uneven market correction, Shibani Kurian believes Indian equities are entering a more balanced phase, with earnings back in focus. The Senior Fund Manager and Head of Equity Research at Kotak Mutual Fund, Kurian brings over two decades of experience in Indian equity markets and has been with the fund house since 2007. She oversees seven schemes with combined assets of Rs 14,784 crore, including the four-star-rated Kotak Focused Fund. In this interview, Kurian explains why large and mid caps now offer a more favourable risk-reward than small caps, how muted earnings have shaped valuations over recent quarters, and why disciplined, bottom-up stock selection anchored in earnings visibility remains central to portfolio construction. Markets have corrected recently, though unevenly across sectors. How are you reading the market at this stage, and has this correction meaningfully changed the opportunity set for investors? 2026 has started off slightly volatile for our markets. Our view has been that markets are typically driven by three key factors: fundamentals as a starting point, flows and sentiment. Now, before I come to the fundamental aspect of what is happening in the market, in terms of sentiment, there has been considerable uncertainty driven by global geopolitical risks and trade and tariff issues that continue. Added to that, if you look at it from a sentiment perspective, there has been some negative and volatile sentiment, primarily driven by the fact that flows, especially foreign institutional investor flows, in January have been negative. FIIs have been net sellers to the tune of almost $3.8 billion, countered by strong domestic flows. Now, if you look at the market in the context of fundamentals, keeping sentiment and flows aside for the moment, the last six quarters have seen fairly muted earnings growth in Indian markets. That has been one of the reasons why, relative to other markets, India’s valuation appeared expensive, especially when viewed in the context of emerging markets. But today, when you look at India, especially given that India has underperformed in the 2025 calendar year and even in January, what we see is that valuations, in relative context to emerging markets, particularly if you look at the premium at which India trades, have come down to long-term average multiples. The second point is that, from here on, we expect the earnings trajectory to improve. We are in the midst of the third-quarter earnings season, and so far, if you look at the 21 Nifty companies that have reported numbers as we speak, earnings have been largely in line with expectations. Therefore, going into FY27, we expect earnings for Nifty companies to improve closer to the mid-teens. Now, in that context, when you look at markets today, large caps are tradin