"The only catch -- or the key factor that needs to be watched, is FPI flows. However, as earnings continue to grow, FPI inflows should follow over time. That is how we are viewing the markets at this point," Sanghavi added.
What's behind market volatility?
Sanghavi said, "the latest round of volatility, from a market standpoint, is partly attributable to the Rupee fluctuations as well. My sense is that once the currency stabilises, the broader economic and earnings matrices and the overall corporate profile are strong enough to help the market continue inching upward."
"Apart from that, as I’ve mentioned earlier, we need to see sustained FPI inflows returning to India. Lastly, the large number of IPOs and capital-raising activities currently underway are absorbing a significant amount of market liquidity" he said, adding, "So, there are a few short-term variables influencing the market right now, but from a medium- to long-term perspective, the outlook remains quite constructive."
Consumption
Sanghavi said, "I think consumption, if you look at it, hasn’t really done much over the past several years. But over the last one year, a combination of measures by the central government, state governments, and the central bank has been consistently aimed at boosting overall consumption, and thereby GDP growth. My sense is that over the next 12 to 24 months, we should see consumption perform much better."
"Consumption itself is a very large basket. It typically starts with discretionary categories and is eventually followed by staples. Within discretionary, anything linked to higher consumer experience, including travel, tourism, consumer electronics, durables and autos -- could lead the first leg of the consumption recovery, followed later by staples. Overall, the consumption trend for the next 24 months looks quite constructive," he said.### Exclusive: Vaibhav Sanghavi on the Market Crash, Nifty Outlook, Earnings, FIIs, and Valuations
Vaibhav Sanghavi, CEO of ASK Hedge Solutions, shared his insights in a recent ET Now interview amid the Indian market's volatility in late 2025. With the Nifty experiencing a correction after hitting record highs (up over 10% YTD), Sanghavi views the pullback as short-term noise driven by factors like Rupee fluctuations and liquidity absorption from a surge in IPOs. He remains cautiously optimistic, positioning markets at an "inflection point" after 18 months of consolidation and valuation resets, with strong tailwinds from earnings growth, GDP momentum, and potential FPI reversals setting the stage for significant upside.
#### The Recent Market Crash: Causes and Short-Term Navigation
Sanghavi attributes the latest volatility to temporary headwinds: "The latest round of volatility, from a market standpoint, is partly attributable to the Rupee fluctuations as well." He also highlights the drag from numerous IPOs soaking up domestic liquidity, creating "uncomfortable" market breadth in the near term. However, he advises against panic: "Once the currency stabilises, the broader economic and earnings matrices and the overall corporate profile are strong enough to help the market continue inching upward." For the next few months, monitor Rupee stability and FPI flows closely, but the medium- to long-term outlook is "quite constructive."
#### Nifty Outlook: Upside Potential Over 24-36 Months
Sanghavi doesn't pinpoint exact levels but sees the Nifty's momentum intact, fueled by buoyant GDP estimates and corporate strength. He forecasts the index delivering **40-50% gains over the next 36 months**, driven by 15% annual earnings growth and some rerating. This aligns with a shift from consolidation to upside, as "better corporate earnings, robust commentaries, and buoyant GDP growth estimates" position markets for gains in the 24-36 month horizon. Short-term struggles (e.g., around 26,300 earlier in the year) are seen as healthy resets, with the index likely to resume its upward trajectory post-stabilization.
#### Earnings Expectations: Steady Growth with Upgrades
Corporate earnings are a cornerstone of Sanghavi's bullish thesis. After four quarters of flat performance, Q2 FY26 saw EPS upgrades and encouraging management commentaries signaling a "stronger second half of FY26." Consensus projects **14-15% growth for FY27**, providing a solid base for returns: "The strength of earnings should provide comfortable returns." Looking ahead, he expects similar 15% annual growth for the next two years, with potential for further upgrades if consumption rebounds.
#### FII Behavior: Outflows in 2025, Inflows in 2026
Foreign Portfolio Investors (FPIs) were net sellers in 2025, reallocating to cheaper AI-themed opportunities in China, Korea, and Taiwan, alongside better post-tax returns elsewhere. Despite this, FPIs remained steady buyers in the primary market (IPOs). Sanghavi predicts a reversal in 2026: "As our earnings grow, with valuations coming back in the longer-term average band, the Fed decreasing interest rates and potential discomfort on AI theme valuations, we can expect FPIs to come back." He emphasizes, "FPIs, or any investor, invest for post-tax returns, and if the variables support it, it’s a foregone conclusion that we will see FPI investments revive in 2026." Earnings growth will be the key trigger: "As earnings continue to grow, FPI inflows should follow over time."
#### Valuations: Large Caps Attractive, Mid/Small Caps Cautious
India's valuations have reset to long-term averages relative to other emerging markets, improving appeal for global investors. Breakdown by segment:
| Market Segment | Valuation Assessment | Sanghavi's View |
|----------------|----------------------|-----------------|
| **Large Caps** | In line with long-term averages; reasonable entry points | "The large-cap segment is looking quite good... our comfort with large caps is much higher." |
| **Mid/Small Caps** | Relatively expensive; growth must catch up | "Midcaps and small caps... are trading at relatively expensive levels... If investments are made at elevated valuations, then the gestation period to accrue the desired returns gets elongated." Focus on bottom-up stories. |
| **Overall (vs. EM Peers)** | Corrected from premiums to average bands | Enhances India's attractiveness as FPIs return. |
#### Investment Strategy and Key Sectors
Sanghavi's 2025 takeaway: "Reiterating the importance of maintaining discipline in asset allocation, along with respect for valuations, consistently helps generate better Risk-Adjusted Returns." He recommends a bottom-up approach in mid/small caps, prioritizing large caps for stability. Consumption is poised for a revival over 12-24 months, starting with discretionary areas (travel, tourism, consumer electronics, durables, autos) before staples, thanks to government and RBI measures boosting GDP. Leading sectors for 2026: **consumption (discretionary, new-age tech platforms, retail, staples)**, **industrials**, and **private banks**. Overall, stay invested for the long haul, as earnings and macro tailwinds outweigh short-term turbulence.
