equity market outlook

UTI Mutual Fund October 2026 Equity Markets The UTI equity market October 2026 call from Ajay Tyagi is mean reversion. India’s five-year returns against the emerging market index are at their lowest level, large caps have already reverted while small caps carry a premium of almost 60%, and he says we are in the last leg of consolidation. UTI equity market October 2026: the mean-reversion case and the last leg of consolidation This month’s UTI equity market October 2026 briefing comes from Ajay Tyagi and Sachin Trivedi at UTI Mutual Fund. Read alongside UTI’s October fixed income webinar and the Kotak October D-Kode outlook. LARGE CAPS 18x vs 17x · Reverted MID CAPS 24 vs 18 · ~30% Above SMALL CAPS ~60% Premium · Weakest WHERE WE ARE Last Leg of Consolidation Summary The UTI equity market October 2026 read: markets are mean reverting, Ajay Tyagi says, and India’s five-year rolling returns against the emerging market index have reached their lowest level — which he reads as a contrarian signal that India should do better in coming years. Part of the reason for the consolidation is earnings growth of just 3% and 8% over two years, about 6% on average; he expects mid-teens growth in FY26, FY27 and FY28. The detail The yield gap, and why foreign flows have been weak Fixed income investors seek yield while protecting the downside, and India’s yield gap over US Treasuries has narrowed to 190 basis points — under 2%, against roughly 7% ten years ago. With the rupee depreciating around 3% against the dollar over the long run even before volatility, that is not a profitable trade; he thinks that while the gap stays this narrow India will not attract fixed income investors. Equity investors look at underlying growth, so the pickup of the last two quarters should bring interest back and, hopefully, turn weak foreign flows positive — if, he adds, the economy keeps showing growth and earnings visibility. And he says this with US yields at 5 to 6%, which over 30 to 40 years is the average: investors anchoring on 2010 to 2022 are misreading today’s yields, because that phase was abnormal. Fundamentals first, then valuations Averaged across multiple 10-year rolling periods over roughly 20 years, large cap revenue growth is highest at 11% against 10% and 9% for mid and small; midcap operating profit growth runs about 1% above large cap while small caps are much lower; small cap net profit growth has been the weakest. That, he thinks, is probably why mid caps have given 1 to 2% better returns than large caps over long periods — but he says small cap return expectations should be kept below large cap. Rolling returns over the same multiple 10-year periods nonetheless show mid and small ahead of large, which he attributes to the valuation level small caps trade at. Large caps are at 18 times against a 17 times average, a 5% premium, with mean reversion already done. Mid caps have also reverted a good deal but are still at 24 against 18, about 30% above. Small caps carry a premium of almost 60% and have not mean reverted — which is why UTI’s view is that they will be the weakest performing segment over the next two to three years. The largest part of the market is also the cheapest India’s mega caps have done the opposite of the US, where the top 10 carried the market. Here the top 10 have undershot, with returns below their own averages, which he says makes them attractive: the BSE 100 is near its average and its top 25 stocks are below the long-term average. The same reversion applies by sector — PSUs, capital goods, power and metals sit well above their averages, while IT, FMCG, consumer, consumer durables and banking sit below. Banking, IT and FMCG are already close to their bottom levels over a full cycle, one reason UTI wants to take a contrarian call on them; UTI thinks those sectors should do well over the next three to five years. On 25 years of Nifty 500 data, 2000 to 2003 delivered minus 26% and then 500 to 550% over four years; the financial crisis took markets down about 60%, followed by roughly 140% in two. He reads today as closest to 2010 to 2013 — three years of no returns before the rally from mid-2013. This phase is two years old and he says it is hard to say when markets turn, possibly another three to nine months, but that we are in the last leg of consolidation. What this means for investors Ajay Tyagi’s own summing up, plus the Q&A Rates are rising here too. A 25 bps hike has happened and two more could follow, because India cannot keep its yield differential with the US too narrow. He thinks crude at current levels is manageable; a move to 130 to 140 that settles there could be a serious problem. He recalls 2011-12, when crude was elevated for about two years during the Libya war, and argues that inflation-adjusted today’s dollar price is not comparable. He flags some inflation risk and a wider current account deficit this financial year. Keep asset allocation front and centre. Markets have become attractive, but global factors argue for risk mitigation, so some allocation in hybrid funds; within pure equity the tilt stays towards large cap. Stay staggered and keep the SIP going — after a weak phase, he says, a strong phase has always followed. On style, value has done very well for four to five years while quality has disappointed; he expects that to reverse. From the Q&A: consumption is 65 to 70% of GDP and has picked up over two quarters after income tax cuts, GST cuts and state welfare schemes, with the Eighth Pay Commission due next year. The UTI equity market October 2026 briefing sits alongside UTI’s October fixed income webinar and the Kotak October D-Kode outlook.