QUARTERLY UPDATE JAN-MAR 2026

Navigating the Great Divergence: Q1 2026 Market Review & Outlook

"In investing, what is comfortable is rarely profitable." — Robert Arnott

The Quarter in a Nutshell:

The first quarter of 2026 has been a masterclass in market volatility. After ending 2025 on a high note, the first quarter of 2026 brought a sobering reminder that risk never truly goes away, it just changes shape. We entered January with the Nifty 50 touching all-time highs of 26,340, only to find ourselves navigating a complex web of geopolitical escalations and a shift in global monetary expectations.

Q1 was a reality check. We saw a massive split: while global markets felt the heat of geopolitical tension, India held its ground quite well. For your portfolio, the real story wasn't just the headlines it was about staying disciplined and making sure your money was in the right buckets.

1. Beyond Our Borders: Crude Oil and the Tug-of-War in Global Markets

• The biggest shift in the global mood this quarter came from the Middle East. Tensions around the Strait of Hormuz moved from the pages of the news to the forefront of our portfolios. Because so much of the world’s oil flows through this narrow passage, even small disruptions create big ripples.
• The Price at the Pump (and the Port): We saw Brent oil prices jump from a comfortable $70 range late last year to a massive 60% surge in March alone. For investors, this wasn't just a headline it was a "catalyst" that changed the cost of doing business everywhere.
• The Fed Hits the Brakes: For a while, everyone was bracing for interest rate cuts. However, this "energy shock" brought back the ghost of inflation. As a result, the US Federal Reserve and other central banks had to pause their plans, to wait and watch instead. This uncertainty is why we saw the S&P 500 dip by about 4.3% this quarter.

A Reality Check for Tech: We also saw a much needed "cooling off" in the AI space. After a year of excitement over what AI might do, investors started asking what it’s actually doing. The market moved from buying into "potential" to demanding real performance, which is a healthy reset for the long run.

2. The Indian Context: Resilience and Sector Rotation

While global markets were stumbling, India once again showed its inner strength. We weren't completely immune to the world's problems (no market is) but the impact was more of a 'speed bump' than a roadblock. The real story this quarter was a shift in where the money was going: investors moved away from high-priced 'growth' stocks and sought safety in 'value' and more defensive sectors.

Sectoral Standouts

The surge in commodity prices acted as a double-edged sword.

• The Winners: Nifty Metal (+29%) and PSU Banks (+17%) were the clear leaders. The rise in global metal prices and the robust balance sheets of Indian state-run banks provided a safe harbor for capital.
• The Laggards: High-valuation segments like IT (-12.5%) and Realty (-16%) faced the brunt of the correction. Similarly, consumption-driven sectors (FMCG and Durables) were hit by fears of rising input costs and a potential squeeze on rural demand due to fuel inflation.

The Broad Market Correction

We have to be realistic. This was not a minor dip. For many in the Mid-cap and Small-cap space, the correction was sharp enough to pull valuations back by nearly two years. For the first time in a long while, the "froth" has been completely cleared from the system.

However, from an advisory perspective, this is where the most significant wealth is often built. While the correction was hard to endure, it has effectively reset the clock, creating a rare, high-conviction opportunity to increase equity exposure at prices we thought were long gone. For those with a five-year+ horizon, this reset has turned a crowded, expensive market into one of the most attractive entry points we have seen in this decade.

3. The Outlook: Structural Strength vs. Short-Term Shocks

We have to acknowledge the elephant in the room: the "Energy Shock" has forced a massive rethink of our immediate growth. Major rating agencies, including Moody’s, have recently downgraded India’s FY27 GDP projection to 6.0%. This reflects the reality of $120+ oil and the logistical hurdles in the Middle East.

However, as advisors, we look for the line between a cyclical shock and structural health:

• Growth Still Leads the Pack: Even at 6%, India remains one of the fastest-growing major economies in the world. While the pace has slowed due to external costs, the domestic engine—driven by government infra-spending and a robust banking sector—is not broken.
• The Energy Pivot (Reducing the Oil Anchor): The current crisis has only accelerated India’s mission to decouple from oil volatility. We are seeing an unprecedented push in the Piped Natural Gas (PNG) network and Green Hydrogen initiatives. By moving the economy toward a "Gas-based" and "Electric" framework, India is systematically reducing the impact that a crisis in the Strait of Hormuz can have on our GDP in the future.
• The RBI's Steady Hand: In the MPC meeting this week, the RBI kept the repo rate unchanged at 5.25%. Their "wait and watch" stance suggests that while inflation is a concern, they have the liquidity and record forex reserves to navigate this storm without a systemic collapse.

The Valuation Gap: This is the crux of the opportunity. The market has priced in a two-year pullback, while the actual economic growth, though moderated, remains positive. When market prices fall faster than the economy slows, it creates a "value gap" that long-term investors can exploit.

4. What should investors do? The Q2 Playbook

In periods of high "Macro-Noise," the best strategy is often the most boring one: Discipline. Since we manage wealth through diversified structures, our focus is on ensuring your capital is sitting with the right fund managers.

1. Asset Allocation is Your Hedge: With geopolitical risks elevated, your exposure to Multi-Asset Allocation Funds or specialized Gold/Commodity buckets should not be seen as a speculative bet. Think of it as an essential insurance policy that protects the core of your portfolio.
2. The Opportunity in the "Reset": History shows that the best time to invest is when it feels the most uncomfortable. With the broader market reset, many high-performing Mid-cap and Small-cap funds are now seeing their underlying holdings trade at much more realistic valuations. We are no longer paying a "hype premium" to get into these funds.
3. SIP Continuity: Record-high domestic SIP inflows (exceeding ₹20,000 Cr monthly) have become the bedrock of the Indian market. Do not pause your systematic investments; volatility is precisely when your SIPs work hardest for you by lowering your average cost.
4. Selective Accumulation (Top-ups): For clients with sidelined capital, the current levels offer a rare window. Instead of waiting for the "perfect" bottom, we recommend using this period to systematically top up your existing PMS or Mutual Fund positions while they are trading at a significant discount to their 2025 peaks.

FINATOZ APPROVED PRODUCTS:

Given the sharp "Great Reset" we’ve witnessed, our Investment Committee recently approved a suite of specialized Long-Short Funds (Category III AIFs). Unlike traditional mutual funds that only gain when the market goes up, these strategies can generate returns by simultaneously "going long" on strong companies and "shorting" (betting against) overvalued ones or market indices.

We have added the following funds to our approved list to provide your portfolio with a "buffer" against market swings:

• Hybrid SIF : We have cleared the ICICI Prudential ISIF Hybrid Long Short Fund and the Edelweiss Altiva Hybrid Long-Short Fund (SIF). These are designed for stability, blending equity strategies with debt-like safety to lower overall portfolio risk.
• Equity SIF: For more aggressive protection, we’ve introduced the ICICI Prudential ISIF Ex Top 100 Long Short Fund and the ITI Diviniti Equity Long Short Fund. These look for opportunities outside the standard giant corporations, where the biggest price dislocations often happen.
• Flexicap SIF: The 360 ONE DynaSIF Equity Long Short Fund has been added for its ability to dynamically shift its exposure based on market heat, helping us stay offensive when the market recovers and defensive when it dips.

Why now? In a market that has "time-traveled" back two years, these funds act as a shock absorber. They allow us to stay invested in the Indian growth story while significantly reducing the "drawdown" (loss) during months like March.

DISCLAIMER – Investor suitability for investment products is subject to and varies based on risk profile and goals planning.

Final Thought

Market corrections are not a sign that the system is broken; they are a sign that the system is functioning. They wash out excess and reset expectations for the next leg of the bull market. The macro data tells us the foundation is solid; the recent correction simply allows us to buy into that foundation. As we move into the heat of 2026, stay focused on your long-term goals and let the diversification do the heavy lifting.

Should you wish to review your specific portfolio alignment in light of these Q1 shifts, our team of advisors are available for a personal consultation.