Sector Rotation Likely to Dominate Market Trends, Mahindra Manulife CIO Predicts

Market Theme Shift: Sector Rotation Expected to Dominate

Krishna Sanghavi, Chief Investment Officer (CIO) - Equities at Mahindra Manulife Investment Management, believes that sector rotation is likely to be a dominant market theme. In an interview with Mint, Sanghavi highlighted the potential impact of the US-Iran conflict on the Indian stock market.

The conflict's end may reduce volatility, but higher energy prices could have a longer-term impact on the market. It is still early to assess the full economic implications of the US-Iran conflict, as neither a clear end is in sight nor is there visibility on the extent of damage to energy infrastructure. In a best-case scenario, resolution would lead to quick normalization of energy supply and prices (oil and gas), though the probability of this outcome appears low.

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The base case is that energy prices remain elevated for some time until global energy supply chains and logistics normalize. In such a scenario, the second-order impact on the economy—and hence on equity markets—could persist even after the conflict ends. One positive factor for India is its logistical proximity to the conflict region, which could support a relatively quicker normalization of energy supplies compared to many other countries once disruptions ease.

Translating macroeconomic implications into equity market outcomes remains both interesting and challenging. While elevated energy prices may weigh on growth, Indian markets could still appear attractive to global investors on a relative basis post-conflict, especially after adjustments in prices, time, and currency compared with other emerging markets.

To navigate this market, investors should adopt a medium-term perspective and look through near-term uncertainties. Over this horizon, the assumption is a gradual normalization of energy supply and, to some extent, energy prices. India's structural growth story—driven by economic expansion, corporate earnings growth, increasing domestic investible surplus, and relative attractiveness to global investors—remains intact.

Investors should continue disciplined investments such as systematic investment plans (SIPs) to benefit from medium-term normalization and compounding. As market visibility remains limited, investors may want to increase exposure to defensive sectors such as energy (oil, coal, power), healthcare, and select consumer staples, which appear relatively safer. However, this positioning should remain dynamic, with close monitoring of developments related to geopolitical tensions and conflict resolution.

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As sector rotation is likely to be a dominant market theme, Sanghavi is looking at sectors such as cyclicals, financials, and consumer discretionary over the next one to two years. These sectors could benefit from improving growth visibility, stronger balance sheets, and a pickup in consumer and investment demand as uncertainty fades.

The value-oriented investment approach has held up well during FY26 amid elevated volatility, driven largely by stock selection across traditional, old-economy sectors such as metals, power, energy, and PSU banks. Additionally, the fund's underweight positioning in private sector banks and consumer-focused stocks also contributed positively to relative performance.