IT services, not index calls, key focus for 2026 amid currency and policy risks: Devina Mehra
Mehra said currency moves, policy actions such as tariffs and goods and services tax (GST), and sector-specific cycles matter more than headline indices. She said that while autos delivered returns in 2025, IT services — after years of underperformance — could see a phase of improvement similar to public sector undertaking (PSU) banks, even as risk events remain hard to anticipate.
These are edited excerpts of the interview.
Q: What stood out for you as you look back at 2025, and what would be the top two or three big ideas, big bets for you, and expectations?
A: Markets will always frustrate you. That’s the thing to remember, that they will never do what you expect them to do. And risk is always something that you do not expect; that is always the theme, and that is the reason why I never give an index projection, either in the new samvat or in December or January. I haven’t done it for years, because that’s something you don’t know.
I’ll just give you an example. In January 2022, The Economist, which is supposed to have all this data of over a century of what happened geopolitically, had given a list of 10 geopolitical hot spots, and they did not mention Russia–Ukraine, where the war broke out the very next month.
And of course, we are talking about the euro and the currency depreciation in India. May I just give you another example? Versus the US dollar, that actually understates how much the Indian currency has depreciated, because the US dollar has not been a well-performing currency against other currencies. So, for instance, against the euro, the rupee has gone down 20%.
So nowadays, people say that if one has to educate their children abroad, the US is not so welcoming. So, let’s go to Europe. So, the news is that your college bill went up by 20% just this one year.
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Of course, the flip side to currency depreciation is the commodity rally in rupees. Of late, the last kicker you saw in metal prices has really come out of the currency.
So, that is the thing. Every year, there are many news-driven shifts that happen. And this time it was the Trump tariffs and GST. I think those were the two overall key drivers.
Q: Two-part question to you. One, for the year gone by 2025 – what is one thing that worked out for you in terms of portfolio positions, and one which didn’t work out and which you expect can turn around for you in 2026?
A: The two industries we’ve been overweight in for almost two years. One had a good run this year, which was auto components and autos, and pharma took a bit of a pause. So, pharma and healthcare was the other area. Pharma has been more of a pause this year. Now we see it again doing well. So those would be the two sides of what we bet on – what worked out and what didn’t.
Q: Anything on metals? Did you expect such a big move in hard commodities? Are you still bullish on the metal names?
A: We had a reasonable number of metals, but we were not overweight metals. That’s kind of a risky thing to play. And as I said, the last bit was the rupee slide, because even if you are not a big exporting nation, the benchmarking of metal prices is always international metal prices. And then, of course, there’s also been protection put in place for Indian metal companies, which is the anti-dumping duties from China. So those have been the two additional buffers for metals in India.
Q: The chatter around a US-India trade truce is increasing, and maybe what didn’t take place in 2025 is expected to take place sooner rather than later in 2026. With the rupee depreciation that we’ve seen this year, and if there is a possible trade deal, do you believe some exporters would benefit in 2026, and could that make for an investing case?
A: If the trade deal does come through, yes, it is a positive, though I think a large part of it is probably already priced in, in the sense that the market has been expecting it for a while. So, it’s not as if it is an unknown positive that will come suddenly.
And if you look at the listed space, other than some engineering and some pharma, there isn’t much export exposure. IT services are not a goods export, but it is a services export. But among the major sectors, that would be it. We have been losing share in our traditional exports like textiles, garments, jewellery, etc. Over the last few years, we have not done well in those traditional exports.
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Q: Any one turnaround sector that you’re betting on?
A: I generally don’t bet on turnarounds because those are high-risk plays, and our whole philosophy is that you must manage risk. If you talk in terms of sectors that have, in terms of stock performance, not done very well, I would think IT services is one you can bet on. We would be slightly overweight IT services. Over time, we moved a little more from large-caps to mid-caps.
As a sector, it has underperformed for a long time and might have a better 2026, something like what banking did this year, especially PSU banks. After five years, from 2020 to 2024, the sector underperformed every year except 2022. After that, they had a good year this year. So maybe something like that could happen to IT services in 2026. But I generally don’t like making one-year bets.
Q: You briefly spoke about banking, but this year was a surprise in terms of FDI investments in the financial space – right from Shriram Finance to RBL Bank to Yes Bank to Sammaan Capital. A lot of FDI money has come into the financial sector. Of all the deals you’ve seen, anything that stands out for you?
A: Not particularly this year. What we mostly added, especially in the first half of the year, was PSU banks. After that, of course, we did a bit of a reshuffle, but not necessarily the stocks that got FDI.
Q: But anything that stands out? Shriram Finance is getting $4.5 billion, RBL Bank is getting a 60% FDI holder – it’s like an MNC bank now.
A: Worth tracking from hereon how these things work out, RBL Bank in particular, but we haven’t made any significant bets there.
Q: I’m curious to know where you’re deploying incremental capital. What is it that you’re buying? Is it the same stocks you already hold, or anything new?
A: We haven’t made very big changes in our last rebalance. One area where we added was oil marketing companies (OMCs). Fast-moving consumer goods (FMCG) – we’ve been adding throughout the year. Banks, particularly PSU banks, we’ve also been adding throughout the year. So, not necessarily only in the October rebalance. FMCG, too, we would be overweight now, and that’s the consumption story coming off very low levels.
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The real low was in 2023–24 when the market was still moving. People woke up to it after the market started going down, but that was the real low, and it has moved up since then.
The flip side to the consumption story is that a lot of the inflation coming down has been food prices coming down. For the rural consumer, that’s their income. So, it’s a bit of a tightrope balance – what is good for the urban consumer is not always good for the rural consumer, for whom food is an income source and not an expenditure source for the most part.
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