Navigating Market Risk 2026: Why Fund Managers Are Bullish | Govindraj Ethiraj

ELI5/TLDR

Two veteran Indian fund managers sit on a stage in mid-2026 with the market down and everyone gloomy, and they argue the gloom is overdone. Oil has spiked, the rupee is weak, foreigners are selling — but they think oil will crash back, India’s earnings will catch up, and the moment everyone hates stocks is exactly the moment to buy them. Their main message: stop thinking in extremes. Don’t pour everything into one bet, spread your money around, and notice that when everyone agrees on the same thing, they’re usually about to be wrong.

The Full Story

The setting matters. This is a closed-room talk in front of large investors and family offices, recorded just after the UAE walked out of OPEC. Oil is above $100, the rupee is sliding, and India’s index has gone basically nowhere for over a year. The two guests are Prateek Agrawal (CEO of Motilal Oswal AMC) and Ashish Somaiya (CEO of White Oak Capital AMC). Both are bullish, and the interesting part is why.

Two different things called “risk”

Agrawal opens by splitting the word “risk” in two. For a fund manager, risk means underperforming the index — if the benchmark does X and you do less, you look bad. For an ordinary investor, risk means losing money, or earning less than they’d have made in gold or fixed deposits. These are not the same problem, and conflating them is where confusion starts.

On the first kind — the manager’s fear of trailing the index — he argues this is actually a great time to be active. His reasoning: the index is stuffed with old, tired companies.

The index comprises of all of the legacy businesses. They had a glorious past. Now, you just whitewash the name of the companies and look at how they have done over last five quarters… mostly you would not [invest in them].

Because every manager already holds things outside the index, and because the action is in newer sectors, he expects most managers to beat the benchmark right now. Think of it like a race where the official pace-setter is limping — almost anyone running their own line will pass him.

The oil bet underneath everything

The whole bullish case leans on one prediction: oil falls back. Both managers think today’s high price is temporary — a spike of a month or two, not a new normal.

Their logic flips the old “we’re running out of oil” fear on its head. Somaiya dredges up a 2008 analyst who, with oil at $145, predicted “peak oil” — that supply had topped out forever and prices would cross $200 and never look back. It didn’t happen. Every oil spike, he argues, plants the seeds of its own crash: high prices kill demand, push people toward alternatives, and somehow new supply always appears.

Every time oil price goes up, it is eventually followed by a crash because when oil goes up there is demand destruction, there is alternate fuel and the supply suddenly comes from literally from nowhere.

The modern twist is political. Countries used to hoard oil fearing scarcity; now they fear being left holding it as the world electrifies. Russia, Iran, Venezuela, the US, and a newly-independent UAE are all pumping to sell while they still can. More sellers, not fewer — so the post-crisis price should settle lower than before.

If oil drops, India’s pain reverses fast. Right now high oil costs India roughly $6–7 billion extra a month, which strains the currency and spooks foreign investors into selling. Agrawal’s point: that’s all in the price already, and the bounce-back can be violent.

Stop swinging for the fences

Somaiya’s contribution is psychological. He says nearly all the turmoil comes from one bad habit — extreme, deterministic thinking.

All successful investors, they need to be probabilistic… never swing for the fences. Never go for the extremes.

He sketches the whiplash: in September 2024 everyone was sure India was unstoppable and dumped money into the riskiest small-cap and sector funds; eighteen months later the same crowd decided India was doomed and piled into gold. Same people, opposite certainty, both extremes wrong. The fix isn’t a better forecast — it’s holding several possibilities at once and spreading your money accordingly. You can only do asset allocation if you admit you don’t know.

He also describes his personal “indicator”: he watches what crowds are asking about. Because the Indian mutual fund industry publishes monthly flow data (on amfiindia.com), he can literally see the herd. In late 2024, ₹13,000 crore poured into hot sector and thematic funds and almost nothing into gold. Recently it flipped — gold flows beat equity, silver suddenly drew ₹9–10,000 crore. To him these are contra-indicators: when everyone’s crowded on one side, lean the other way. Buffett’s “be greedy when others are fearful,” made operational.

Why India still looks cheap

The valuation argument is straightforward. Markets follow earnings over the long run. India just delivered solid earnings growth for three quarters, yet the index went down — so there’s a roughly 18% gap between earnings and price waiting to close. Meanwhile foreigners have sold what they own (mostly banks and IT), pushing those sectors to valuations Agrawal calls the lowest in 25 years. IT is now “pricing in zero growth”; private banks trade near multi-decade lows. For a value investor, that’s a setup, not a warning.

The mirror image: US exuberance

The contrast with America runs through the whole talk. US stocks keep hitting records despite a weakening economy, high inflation, and rates that won’t come down. Part of that is real — the US is energy-surplus, so the oil shock that hurts India barely touches it. But Somaiya is uneasy about the AI capex frenzy:

$500 billion capex if somebody makes… they need 3 to 4 trillion dollar of free cash flow to come back for them to make the ROICs.

He notes a tell: firms are stretching data-center depreciation to six years — “we depreciate our laptops in 3 years” — to flatter the numbers. His blunt framing of the two markets: India is “priced for reality or worse than reality,” while the US is priced as if “all trees will grow to the sky.” On stage, the Hindi shorthand for India’s mood was “sub khatam ho gaya” — it’s all over — which both men think is exactly the bottom-signal worth buying.

The deeper India case, and a Paris detour

Agrawal’s long-term argument is about duration. India is, in his words, “the last sustained growth economy” — even slow-moving cement demand should grow 5–7% for years. Trends in India persist for four or five years, long enough for managers to actually make money before getting whipsawed out. He contrasts this with a trip to France, a 2% economy where managers invest almost mechanically — buy a sector whose P/E has fallen, wait for it to mean-revert — because there are no real growth themes, just “very narrow spaces” like defense and renewables. India, by contrast, offers many growing sectors at once.

On why India doesn’t have its own AI giants, his answer is honest and a little bleak: it’s a poor, first-generation-wealth country with little appetite for bets that have a “half a percent or lower” chance of paying off. He points out that when an Infosys CEO once tried to steer hard into AI, shareholders pushed him out. The risk capital simply isn’t there yet — and that’s a feature of the economy’s stage, not a moral failing.

Key Takeaways

“Risk” means two different things: for managers it’s underperforming the benchmark; for investors it’s losing money or trailing other asset classes. Don’t conflate them.
The Indian index is dominated by tired legacy businesses, so active managers holding newer sectors are likely to beat it right now.
The entire bull case rests on oil falling back within 1–3 months; if oil instead stays above $100 for 6+ months, expect a 10%+ correction.
High oil costs India ~$6–7 billion/month extra and triggers foreign selling (concentrated in banks and IT) — but that’s largely priced in.
Oil spikes self-correct: high prices destroy demand, spur alternatives, and pull out hidden supply. The old “peak oil / running out” fear has flipped to “stranded oil” — producers now pump to sell before demand fades.
Be probabilistic, not deterministic. The biggest source of investor pain is extreme certainty that flips 180 degrees (all-in on small-caps in 2024, all-in on gold in 2026).
Monthly mutual fund flow data (amfiindia.com) is a usable contra-indicator: heavy crowding into one asset class often marks a turning point.
India just posted three quarters of solid earnings growth while the index fell, leaving a ~18% earnings-to-price gap to close. IT prices in zero growth; private banks near 25-year-low valuations.
US markets look stretched on AI capex — $500B+ annual spend implies trillions in future free cash flow, with stretched 6-year depreciation flattering the math.
High P/E reflects not just growth but longevity — India’s edge is a 6% growth rate sustained for 20–25 years, plus governance and cash conversion.
The rupee has historically appreciated sharply after weak phases (e.g. 49→38 post-Lehman); both managers expect it higher a year out.
India lacks homegrown AI champions largely because it’s a first-generation-wealth economy with low tolerance for near-total-loss bets.

Claude’s Take

This is two smart, talented-book salesmen talking to a room of people they’d like to keep as clients — so the bullishness is structural, not incidental. Active fund managers benefit when investors believe “this is the time for alpha,” and you should weight the pitch accordingly. That said, the reasoning is genuinely good and refreshingly self-aware: Somaiya’s “be probabilistic, watch the crowd” framework is the most durable thing here, and the flow-data-as-contra-indicator move is concrete rather than hand-wavy.

The soft spot is that the whole edifice rests on one un-hedgeable call — oil drops fast. They say so plainly, which is to their credit, and they name the downside (10%+ correction if it doesn’t). But “oil always crashes after a spike” is pattern-matching, not certainty; the 2010–2014 stretch they breeze past kept oil near $100 for years. The AI-bubble skepticism on the US side is sharp and well-argued, though it’s also the comfortable thing to say when you’re selling Indian equities instead.

A 7: high signal-to-noise, two operators who’ve clearly lived through cycles, and useful mental models — docked for being a sales-adjacent setting where the conclusion was never in doubt.

Navigating Market Risk 2026: Why Fund Managers Are Bullish | Govindraj Ethiraj | The Core Report