Hello and welcome to Moneycontrol. Well, markets are absolutely flat this morning after a somewhat volatile session yesterday. There is a lot of noise on the geopolitical account, and then there was some cheer yesterday morning around Trump's comments about India having a good trade deal with the US, but that too faded away because investors know that with Trump nothing is done till it is done. And then we are in the middle of the earning season and the countdown to the budget begins because it's just exactly one week away. How do we navigate this rather nervous market? What lies ahead in 2026? We have with us Prashant Khemka, founder and CIO of White Oak Capital. Prashant, thank you so much for sparing time to be with us this morning.
Thank you, Mahalakshmi, for having me here.
My first question obviously is, what is your reading of this market? Is this like some sort of a calm before the storm because it's absolutely dead flat today?
See, obviously it's just today. Hard to say. The next significant event the market would probably be looking forward to would be the budget, which is less than two weeks from now, I guess, or less than 10 days from now. Yeah, so it just happens we're flat right now. By the time we close, we'll be up or down. So, won't read too much into it. Yeah, year-to-date, it's off to a weak start, following what was an average year on some indices, a below-average year. Yeah, so it's been in a consolidation phase since September of '24.
Yeah, you can say there's been a very modest return last year. Before that, the last quarter of '24 was somewhat weak. So, you've been flattish over the last 15, 16, 18 months. And yeah, that's disappointing, but you have to keep in mind we had some spectacular returns after the COVID bottom in March 2020. So, in the context of looking at, if you look at trailing three, five years, I believe we are still in the low to mid-teens returns. As we all know, these equity market returns don't come in a straight line, else they would be fixed income and would provide fixed income returns. So, it's, I think, part of the game.
Right, right, right. True. I guess people who have seen lots of market cycles understand this very well, that, you know, you had three great years, it is time for moderation. We've been talking about it. But especially after last year, because 2025 was again a very flat year, we were 6% on the Nifty. Going into this year, at least there was this hope and optimism that, you know, we've had one, in fact, two years of moderation. That means 2026 should start on a slightly positive note. Rest of the markets, global markets have not been so bad. We are already down 5% on the Nifty. Is this tone in a way making you nervous on what is to come? Because usually there tends to be, Januaries are not so bad. Nothing changes between December 31st and Jan 1st, but still, historically speaking, January is not a very bad month for markets. But we are already on what, the 23rd of January? And this doesn't look like a good start to the year. Or are we reading too much into it?
I think we're reading too much into it, because it's my firm view, and I think we've discussed this, Mahalakshmi, past returns say nothing in the short term. Past returns say nothing about future returns. If you look at trailing 12 months, Nifty price return is 9%. That's more or less what we'd call an average return. I always, whenever we've talked about it, I've said it's reasonable to expect 10 to 12% return from the market. So, price plus dividend, as we stand today, I just pulled up the last 12 months, trailing 12 months return is, I think, with dividends included, 10%. So, yeah.
You know, two days, and see, as I think none other than Warren Buffett has himself said that the markets don't follow the cycle of the sun from January to December. So whether it is the first few days of January, or like last year it was, I think, the first few days of April around the liberation day when India and the rest of the markets globally had tanked, these things can happen at any time, and I would not read much into the forward-looking capability of the last few days' or months' returns.
So Prashant, let's take like two or three important things that, you know, maybe at least look like plausible reasons that are weighing down markets. One is this uncertainty around, you know, geopolitics, the possibility of crude going up, also the rupee. These are some of the factors that, you know, and some of them are very uniquely concerns for India. What is your reading of the global setup for India?
Yeah, I think fair question. I would say, see, the one geopolitical uncertainty that has weighed to some degree, I won't overemphasize because remember again, the markets are flattish. It's not that markets have gone down a lot. We can talk about it in the context of relative to the emerging markets. The prior three years, India had outperformed very substantially. A lot of the rally in Taiwan, Korea, and China has been linked to AI, and it is true that in India there is no really direct AI investment opportunity or as they call it, play, at this time. Yeah, so India is sometimes referred to as an anti-AI bet. If people are concerned about an AI bubble, then India could be a safe place to hide, but at least for the last 12-15 months, it's an AI-led surge.
There've been other aspects of the market as well, like commodities, particularly gold and other metals, and other pockets as well, like in South Korea, this whole value-up phenomenon, and so on and so forth. But the big driver of returns last year was AI, and that's been missing in India. But geopolitics-wise, I think the trade deal, the absence of any finalization there, India was expected to be one of the very first ones to close a trade deal, May or that time frame. We are now nine months, close to nine months later, we are amongst the last. And as you pointed out, the markets took some positive comfort from comments from Trump at Davos, but who knows? His language, his tone, his words, they change every time he speaks, they're different when it pertains to the deal, as well as his key members of his leadership team. Sometimes they're positive, sometimes not. I think India is playing it wisely. Other places who've done the deal, they also are realizing that, you know, a deal means that they are bound to the deal, but the US is not bound to the deal. So what kind of a deal it really is? So I think India is playing it very wisely. We don't need to rush headlong into just any kind of deal, which anyways may not have a lot of sanctity from the other side.
Right. But it is not just the deal, right? I think the concern for the market also for the economy is the second-order impact of this complete tariff reset. You know, the news of Chinese dumping in Europe. People are now questioning that, you know, how rewarding are these FTAs that are going to be launched with Europe really important for India, because if there is going to be so much dumping all around the world and all these markets where everybody is looking to diversify to, the benefits will not come through. What's your thought?
That second-order effects are there, no doubt. And if the tariffs stay on India where they are at 50, we do expect certain sectors to be hit. The most obvious ones are textiles, apparel, gems, jewelry, chemicals, but also engineering goods. We're hearing from a lot of engineering goods companies that those who have exposure to the US, that, you know, it's going to be depending on how they are structured, whether they are purely India-based manufacturing or...
Sorry, I lost your audio, Prashant. Sorry, we're not able to hear Prashant. Just waiting for the link to come up.
Let's try to get across to Prashant. I think it'll take a couple of minutes for us to reconnect. In the meanwhile, I don't see the markets going anywhere. I mean, 20 points minus on the Nifty. It looks like a real flat market which is absolutely confused. There are so many imponderables out here. Even in terms of earning season, it's not very clear where the earnings are headed. There are mixed views. In fact, if there is one thing that is really common amongst analysts, there is no consensus about where earnings are headed. For example, in tech itself, you had surprises. Expectations were running low and there were some surprises on the earnings front with respect to tech. Now, we have to wait. Even in terms of views on the markets, I see that most of the fund managers are quite divided in terms of what they would like to buy. In fact, people don't have very categorical views on, you know, which sectors they want to back. It's very stock-specific. But, Prashant, can you hear me? I can't hear you, though. Sorry, we aren't getting his audio.
Are you able to hear me now?
Okay. Sorry, I don't know, my screen froze. My screen froze and I switched to my telephone, my mobile phone. I hope the connectivity is better. Can you hear me still?
Yes, I can hear you. I can hear you. I can hear you. We were talking about the second-order effects.
Yes, second-order effects. So, yes, there'll be certain sectors, there'll be bigger negative impact like textiles and gems and jewelry and so on, but also engineering goods. We are hearing from companies they also are expecting some slowdown. They already, because of the uncertainty, they've seen slowdown in inquiries and there could be deferral of orders till this all settles down and the customers are able to factor in what ultimately would be the actual tariff rate. So, there would be some second-order effects, but look, could it dampen the economy by 25 basis points to 50 basis points if it continues to drag like this? I mean, the Indian economy, yeah, it has that possibility, and on the margin that does have a magnified impact on earnings of certain sectors, and on the market as a whole it could have a couple of points of impact on corporate earnings in the near term.
Understood. So, taking cue from, you know, this global scenario and also the domestic situation, in any case with or without the tariff, we've had an earnings slowdown very clearly which is domestic-led. In terms of the budget itself, do you see the finance minister, you know, coming up with something? Does she have any levers to accelerate demand or levers to substantially step up, you know, public spending which can sort of, you know, make up for whatever we might end up losing even if this deal doesn't happen and we have to deal with all these second-order impacts?
The markets anyways are not beholden to or are not enslaved to this year's corporate earnings. Yeah. So, even if, let's say, even if the government cannot do anything to move this year's earnings, I don't think at least we care at White Oak or the market would be totally dependable on that. What is the strategic, what is the long-term direction of the budget? I think people or the market would be wanting to read the mindset, the underlying mindset behind the budget. I don't think a little bit of relief here, a little bit of relief there to one sector or the other, a tinkering budget would necessarily be a morale booster for the market. Even if the budget means nothing, zero for this year's earnings of the market or corporates or the next year's earnings of the corporates, still the market may boom if the budget is structurally delivering the right message.
What do you mean by that? In concrete terms, what would you like to see in the budget?
So, see, what I hope, who knows what we'll see, but what I hope in this year, in the context of what's happening around the world, my wish list, I mean obviously the wish list is very, very long, but if I were to... And look, the government... Bottom line, I'd like to see acceleration on a lot of the fronts that this government has been working on over the last 11 years. Particularly, if I were to highlight three areas where the honourable Prime Minister himself has emphasized: Shashakt Bharat, Atmanirbhar Bharat, and Viksit Bharat. Or in other words, Shashakt Bharat is, let's say, strong India. This year, unlike any other year, I think the opportunity is there and the need is there that we should substantially ramp up our defence budget. Defence budget is stuck at about 2% of the GDP for quite some while. And while we have spent a lot on infrastructure in India, defence is the most crucial element of infrastructure, and if it wasn't so, then all that's going on in the recent years in the world should drive home that point that it is a very, very crucial form of infrastructure, and it should be at least twice its share of GDP. From 2% it should be at least 4-5%, which is what globally a lot of countries are moving towards, and India, with its neighbours on the north side, you know, if anything, should be at the higher end of what other countries are. So, that's one that I would like to see. Obviously, we can't jump, we can't double the budget overnight from 2% to 4%, but there should be maybe a roadmap provided or a strong beginning in that direction.
Second, I would say in terms of Atmanirbhar or self-reliant Bharat, Atmanirbhar Bharat or self-reliance, again linked partly to geopolitics. What the recent years have taught us is we can't be dependent on any single two or three countries on any crucial aspect, on any crucial import. If you are importing from 50 different countries, that's less of a dependence. But if you are importing from one, two, three, four countries and heavily dependent, that's not sustainable over time. So, obviously, defence itself is the biggest area probably for indigenization and greater focus on indigenization, but it's not limited to defence. Look at chips. Chips today are part and parcel of everything we use. Be it the mobile phone that I'm doing this call through, or computers, any machinery, security systems, everything, automobiles, everywhere chips are needed. And predominantly, most of the semiconductors India imports from a very select few countries in Asia, including China, probably a big component of all of these. We cannot sustain if we were to think of ourselves as a superpower, which we are and aspire to be. This is not sustainable. You can't be dependent on two or three countries. One of them is your arch rival. The other one is at risk of being taken over by your arch rival. I'm talking Taiwan here. You can't be dependent and wait for some such eventuality to happen and then build this. India is already 30 years behind in semiconductors, right? If not more. We've made a start over the last two, three years through the PLI scheme and other initiatives. You know, we've made a start, but we need a massive push. I'm never a big fan of public sector units, or let me put it this way, I'm not a big fan of government entering areas where the private sector can take care of. Yeah? But here we are so far behind. 30 years behind. I think there is a justification and need for some Bharat Semiconductor Limited or Hindustan Semiconductors Limited, because just the private sector may not get there. And you may need government to put all its weight behind. And we need to have a roadmap again that it can't be bridged in the next year or two, but over the next five, ten years we ought to move in that direction to reduce our dependence on Taiwan, China, Korea, and other countries when it comes to chips and semiconductors in general, which are a very crucial element of every form of machinery that we use today.
And third, towards the Viksit Bharat or the aspiration to be a developed country by '47, I think the growth rate at which we are growing, 6%, while it's one of the highest in the world, there is room and need for it to be stronger for the job creation that is needed. And for job creation, we need to cut red tape. I mean, Trump says a lot of things that people laugh at, obviously, and we all joke at, but he also says a lot of things that make a lot of sense. At the Davos speech, he talked about cutting 10 regulations for every new regulation they put in place. And he pointed out that they've actually cut 129 regulations or something like that for every new regulation. Who knows? Trump says a lot of things which people can keep verifying and are not able to verify. But he also said that other countries can copy too, and there is no harm in copying something that is good. And I think around the world there is a very high degree of a maze of complicated regulation that stifles businesses. And businesses are who create jobs. If you have over-regulation in any area, you know, you are going to stifle jobs. And in India, there is a lot of over-regulation. A lot has been done over the last 10 years, 11 years, but there's a long way to go. And a lot of it entails participation from states, but we can't just say it's a state problem. The centre can do, I mean, has done what it has done. There has to be a way figured out, like land. I mean, no other country in the world, and I've invested during my lifetime probably in 50 countries, any country that's worth investing in. No other country, when I meet with company managements, do the company managements talk like having land for their factory is their biggest USP. Yeah, in India, 'mere paas land' like you know, [laughter] reminds me of the Deewar dialogue, 'mere paas maa'. Yeah, there is land, procuring land is like the biggest problem. And it takes so many companies say, yeah, we have the land, but it is getting converted into industrial use and it goes on for 12 months. So, it's just some of these things we have to figure out how to... Land is a very crucial input in industry. We have to figure out how these... and time is of paramount importance. If you're buying land and waiting for 12 months for change of land use, or as it is called CLU, that's not going to get us to where we want to be. And this is an opportunity in times like this, in times of crisis, we have taken leaps in the past, and we have been over the last 11 years making a lot of strong progress on ease of doing business, but this is a very opportune time and I hope it is utilized to accelerate our journey towards Viksit Bharat. So, Shashakt Bharat, Atmanirbhar Bharat, and Viksit Bharat, on all three fronts there is great opportunity to make a very... And if we do this, it doesn't matter whether next year or this year, the government can actually increase taxes on corporates, on capital gains, on everything, and still the market would rally if we see this structural direction in the budget.
I'm not recommending we increase... I'm not recommending we increase taxes. I'm not [laughter] recommending we increase taxes, because oftentimes you recommend you do this good and you can then do this also. Oftentimes the good is not done and only the taxes are raised. So, you only get the bad side. I'm not recommending the taxes be raised. What I'm saying is the market won't care even if the taxes are raised, but if it sees that structurally we are accelerating, that would be a very strong message to the market, and the markets in my view would rally.
Right. No, Prashant, in terms of, you know, messaging, I think this government has been consistently messaging that they are, you know, committed to doing ease of business. It's a different story that, you know, what finally translates on the ground is obviously a different story. I mean, it's always the case, incrementally maybe a lot of things are getting done, but it's not enough, you know. But from a here-and-now perspective, you know, what is it that the market will respond to? Because markets won't respond to issues of land, which is an eternal issue. We wouldn't have had a post-COVID rally if we were thinking about land at that time. So, what is it that you expect in this budget that could really cheer, or could there be any trigger that could change the market sentiment or the narrative from here on? That's question number one. Second thing is what you said about, you know, defense spending, setting up... and I'm very surprised you're actually batting for government actually setting up a company like a Bharat Semiconductor, because the thinking largely from the private sector is they shouldn't manage companies. You give incentives if you want to promote a sector, private sector will do a good job of, you know, setting up the business and growing it. But my question is with respect to defense, semiconductor, and the cohort that you're talking about, is there a way to play it from the stock market point of view? Will you be a buyer in defense stocks, ancillaries to semiconductors, etc.? From a stock market perspective, is there any cohort that benefits from this kind of orientation?
Certainly. So, I mean, several questions there within the question, Mahalakshmi. One is, you know, you talked about post-COVID, you know, market will wait for land and so on. I would say, look, to the extent that we're talking about what government can do, and budget being an opportunity right now. Because see, post-COVID, it wasn't necessarily that governments anywhere in the world did anything to spur the market. It's just that the market nose-dived as much as it did. And, you know, the market figured out that it's not as bad for corporate earnings. I would say from a sectoral... So, I at least believe that near-term relief to a sector or two or few sectors, I see GST tax cut for a variety of reasons, rationalization may be a good thing, but I think beyond a point, beyond a day or two of some sector-specific rally, I don't think such giveaways would necessarily boost the market to the extent structural factors that I'm talking about, again, my biased opinion, would be underpinning a sustained rally or would cause a structural rally.
Yes, capital gains tax and all these things, you know, these are pain points for global investors because not only the amount that they pay is a pain, but the process that entails. You only have to do these tax calculations. Now, I'm not just calculations, the entire structure has to be put in place for just one country because most countries don't charge capital gains tax on foreign investors, but I'm not going into any area of tax cut, you know, because it just hijacks the whole discussion. And so I hardly ever talk about cutting taxes. What I'm saying is the market would care for more structural things rather than some near-term sops to prop up the market. Not suggesting that that's what the government is planning to do, I have no idea, but in terms of sectors and all, I would wait till the budget is delivered and be rather, you know, happy to miss whatever rally different sectors might have than preempt what the budget might hold for different sectors. But if I were to... Yeah, defense, I mean, to me it seems like... No, Mahalakshmi, I think to me it seems like defense is a slam dunk, but who knows? That's, you know what, that's, you know, I've in the past been totally wrong in my expectations from such things, and so I've learned not to preempt such developments.
Right. You know, there are two risks with this, right? One is getting the... I mean, you have to get two things right. One is the event itself, the prognosis or the forecast of the event itself, and then how the market reacts to the event. And I think in just two years we have, you know, seen multiple situations where you could have predicted the event correctly and the market would have reacted exactly in the opposite direction. So yeah, it is a tricky affair. But coming back to the question on, is there a way in which you can play this through the market, for example, defense, talking about?
See, defense, there are a few companies. See, again, defense sector has been opened up to private sector only over the last few years. It was for many, many years, it was a domain for only foreign players, I would say, or a certain set of PSUs. Finally, it was very good to see defense sector being opened up to private sector. Look at our own industry, asset management was not open to private sector till the early '90s, and then obviously it has boomed, but it takes time. So the reason why I said Bharat Semiconductors, or first time you would have heard from me, never in my life I have suggested anywhere government should enter what private sector can do, but we just don't have the time, I feel, right now. We've been just so late, and the way the world is evolving, I don't think we have the time to let private sector catch up on how far behind we are in such a crucial segment of the economy or aspect of the economy, which is semiconductors. And so all-round efforts, not saying just the government should do, and even it's possible that the government need not enter, but a massive degree of push is needed in that segment to reduce the reliance on the rest of the world, particularly on two or three countries.
