As global markets head into 2026 with elevated valuations and high expectations, the message from seasoned strategists is shifting from broad optimism to selective conviction. Matt Orton, Chief Market Strategist at Raymond James, believes the coming year will reward investors who focus on earnings durability rather than themes alone. Speaking to CNBC TV18, Orton outlined a strategy that leans into cyclicals globally while highlighting specific opportunities in Indian equities ahead of the Q3 earnings season.

Global equity markets have remained resilient despite tighter financial conditions and geopolitical uncertainty. However, leadership has been narrow, with artificial intelligence-linked stocks driving a disproportionate share of returns. Orton argues that this imbalance sets up 2026 as a “show me” year, particularly for AI-heavy portfolios.

According to him, investors are entering a phase where earnings delivery will be scrutinised far more closely than forward-looking promises. Stocks that have re-rated aggressively without commensurate EPS growth could struggle, while fundamentally strong businesses may reassert leadership. This environment, he says, favours cyclicals and economically sensitive sectors that reflect real demand rather than long-duration narratives.

Orton is advocating a clear cyclical tilt across regions. In the US, he prefers financials and industrials, including companies linked to data centre infrastructure and manufacturing. In Europe and emerging markets, financials remain a key theme, supported by improving balance sheets and credit conditions.

Within India, his focus sharpens further. Orton identified HDFC Bank as his top overweight position, citing its scale, balance sheet strength, and positioning going into what he expects to be a supportive earnings cycle. He also sees improving signals from ICICI Bank, suggesting that adding exposure ahead of Q3 results could make sense for long-term investors.

This view is notable given that Indian banking stocks have lagged parts of the broader market in recent months, partly due to concerns around margins, deposit growth, and regulatory scrutiny. Orton’s stance implies confidence that these headwinds are either priced in or manageable.

For Indian markets, commentary from global strategists matters because foreign institutional flows remain a key driver of valuation support. A constructive view on large private banks - the backbone of the Nifty and Sensex - has broader implications for index stability, especially during earnings-heavy periods.

Banks are also among the most direct beneficiaries of cyclical recovery. If credit growth holds up and asset quality remains stable, earnings visibility could improve materially. That, in turn, may help anchor market sentiment even if high-growth sectors like technology face volatility.

On Indian IT services, Orton struck a more cautious but evolving tone. The sector has underperformed meaningfully, reflecting global tech consolidation, pricing pressure, and uncertainty around discretionary spending. While he is not ready to make an aggressive allocation, he acknowledged early signs of improving sentiment.

He pointed to strategic resets at Tech Mahindra and the diversified global exposure of Infosys as reasons to start watching the space more closely. Still, he reiterated that IT and AI-linked stocks remain in a “prove it” phase, where execution and EPS delivery will determine winners rather than sector-wide optimism.

Orton also shared a candid view on Indian consumer exposure through Swiggy, a stock he personally owns. Despite intense competition and margin pressures in the food delivery and quick commerce space, he believes Swiggy’s efforts to strengthen its balance sheet and focus on higher-value offerings are constructive.

His comment that Swiggy “looks fairly cheap” reflects a valuation-based argument rather than a near-term earnings call. He expects consumer conditions to gradually improve into the first half of 2026 after a challenging period, which could support a recovery in discretionary spending.

Orton’s framework suggests a rotation rather than a broad risk-on move. For India, sustained interest in private banks could stabilise financials, while selective IT exposure may attract incremental flows if global tech spending shows signs of bottoming out.

At a sector level, his views reinforce the idea that 2026 will not be forgiving for weak balance sheets or unproven growth models. Capital is likely to concentrate in companies that combine scale, earnings visibility, and reasonable valuations.

The bullish case rests on global growth holding up, allowing cyclicals and financials to deliver steady earnings. In India, strong Q3 results from large banks could revive confidence in the sector.

The bearish case would emerge if global growth slows sharply or if AI-led volatility spills over into broader markets. In that scenario, risk appetite could narrow further, hurting both cyclicals and consumer-facing businesses.

Key risks include a sharper-than-expected slowdown in global demand, pressure on banking margins, and delayed recovery in IT spending. For consumer plays like Swiggy, competitive intensity and funding conditions remain critical variables. Ultimately, 2026 looks less about themes and more about proof - a market that will reward delivery and penalise disappointment.