Will markets crash in 2026? Value Research CEO says valuations don't look cheap

As questions grow louder over whether India's stock market is in a bubble and whether a crash could follow in 2026, Value Research CEO Dhirendra Kumar offered his assessment of valuations, risks and structural shifts shaping the market.

"I wish I knew," Kumar said when asked directly whether a crash was imminent. "We have people calling the forthcoming crash for nearly one and a half, two years. Beginning of the year, I was told that the market would crumble very badly. But the market is an ever-changing place. A lot of things contribute to it."

Kumar acknowledged that in relative metrics, India does look expensive. "India is certainly looking more expensive than most other markets when we look at it comparatively, but at the same time, India is also a faster-growing market. So, it can well be defended," he said.

He pointed to the Buffett indicator - the ratio of market capitalisation to gross domestic product - as a key valuation signal. "The buffet indicator, which is gross domestic product in relation to the market cap, that looks little expensive. That is one single most important variable which indicates that what is the general level of the market," Kumar said.

At the same time, he cautioned against reading that indicator too literally in India's case. "But it's a very lopsided thing in India. Because a good part of our economy is just not in the listed traded universe. We have so many public sector companies, we have so many foreign companies operating in India that are part of our gross national product or GDP, but they are not part of the listed universe. So market cap and GDP may not be...but generally speaking, yes - it (market) does not look cheap," he said.

Foreign investor behaviour, Kumar noted, adds another layer of complexity. "FIIs call our market not very expensive, but they are still not investing. This is going to be a second successive year where they have pulled out," he said.

Looking at the positives, Kumar said the last few years have delivered changes he did not expect. "When I look at the positives, one is that in the last 3-4 years, we have seen the resurgence of the manufacturing sector, which I never imagined that we would be getting from there," he said.

The veteran investor also flagged uncertainties, particularly around technology. "Then there are other negatives too. If I look at some more negatives in terms of what is happening in AI and the Indian IT services business. I don't know what is in store for us. How much should we be scared?" he said.

On the optimistic side, Kumar returned to balance sheets and profitability. "When I look at the optimistic case, we are witnessing a resurgence of manufacturing. Look at the corporate balance sheet. We have the banks which are in pink of their health," he said.

"When we look at corporate balance sheets, they're all sitting on money. Companies are making profits, paying taxes and after that leftover with a lot of money which can be spent on adding greater capacity that will lead to even faster growth," he added.

The CEO said key financial metrics have turned supportive. "Return on equity has improved. Interest rates have stabilised. And that will improve profitability," Kumar said.

One factor he described as particularly unusual is the sustained flow of domestic money into equities. "When I look at one particular factor that is quite unusual that we are witnessing a second, third, fourth year of the surge in domestic investors' money. And it is not a seasonal thing, and this is a systemic change," he said.

Kumar attributed this to structural shifts in participation. "Because democratisation of the Indian equity market through mutual fund is of unprecedented scale, and that is supported by two other things. EPFO flows and NPF flows," he said.

As a result, he argued, the current market does not resemble past cycles. "So I don't know whether we can actually visualise what the world will be because we have never seen it in the past," Kumar said. "For the last 25 years, we have seen Indian markets where it has been seasonal, companies make a lot of money, and the market goes up and goes up dramatically, and then the reversion to mean, the cyclicality of earnings."

For individual investors, Kumar's message was. "I think if you're young, you should be investing in equity. If you are investing in equity, you should be diversified," he said. "If you are investing in equity and your investment is nothing meaningful, hell with the fear that the market will crash because you will never be able to get into the market if you remain fearful," Kumar added.

"We were fearful two years ago, we were fearful a year ago, and we are fearful now. And we were fearful 10 years ago, five years ago," he said. "So you just need to chalk up a plan for yourself, and you must have those premise in place to benefit from it and don't wait any further."