On interest rates, he expects limited room for further easing, stating, “We’re towards the tail end of the Fed cutting cycle, maybe one, potentially two cuts I can see but not more than that,” while also flagging the Bank of Japan’s gradual move towards higher rates. A notable development, he added, has been the recent expansion of the US Federal Reserve’s balance sheet, which he described as a form of “not QE QE”, underscoring how liquidity conditions continue to influence markets despite tighter policy rhetoric.
The third major driver, according to Seth, is the evolution of the AI theme. He expects investor focus to shift away from early-stage excitement towards identifying the true beneficiaries of AI adoption. This next phase, he said, will demand closer scrutiny of capital expenditure returns and business models, rather than blanket optimism around the theme.
Also Read: ‘Momentum is on their side’: Amnish Aggarwal’s big bets for 2026
Turning to India, Seth sees improving prospects for the capital expenditure cycle, particularly in the industrial space. Commenting on large order wins such as those reported by GE Vernova, he said, “I actually do think you will see some pick up in the capex cycle… it would probably be a good year going into 2026 for the sector overall.” He believes this revival could provide broad-based support to domestic industrial companies.
Also Read: Gold price could hit $10,000 by 2029 end, says Ed YardeniOn Indian information technology (IT) stocks, Seth urged selectivity. While acknowledging AI as a long-term opportunity, he warned that large, broad-based IT services firms face “AI substitution risk.” In contrast, he sees opportunity in “niche players who are actually getting more involved in the implementation of the beneficiary part of AI for the broader economy,” stressing that success will depend on how effectively companies pivot their offerings rather than on sector-wide trends.
Seth also remains structurally positive on India’s financial sector, including private banks and non-banking financial companies. He cited the ongoing financialisation of the economy and steady credit growth as durable tailwinds, saying, “I don’t see a reason not to be positive.” He does not expect a sharp deterioration in the credit cycle and prefers established mid-cap financials with strong corporate governance, which could benefit from foreign portfolio inflows as well as merger and acquisition activity.
Given tight global valuations, Seth said his portfolio positioning has turned more defensive. He is favouring higher-quality, front-end high-yield bonds while maintaining short positions in longer-dated sovereign bonds. A key element of his strategy for 2026 is maintaining exposure to volatility. “You want to be long vol in 2026 because where you see the volatility in the system, more from an equity or FX vol standpoint, it has been extremely suppressed by liquidity,” he said, adding that credit indices and equity options can be effective tools to hedge against tail risks in a potentially more unstable market environment.
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