City have sealed qualification from the group stages for the first time, but look set to finish in second behind European champions Bayern Munich.
Second place will likely mean a tougher draw for City, as they will face a group winner, but that does not hold any fear for Pellegrini.
"Spain has strong teams, Barcelona and Real Madrid especially, but also Atletico Madrid are having a very good season," he said.
"But I'm not afraid of who we are going to play in the next round. It's not a major problem. Anything can happen in two games. We have a strong squad.
"People might say it's difficult for us to play against Barcelona, Real Madrid, Atletico - or Paris Saint-Germain are another team we could face.
"But all of them would not be happy to play against us. I trust this squad a lot so I hope they can continue in the Champions League.
"It's important to be strong mentally. Also it's important to be a winning, ambitious team. Mixing good players with ambition is the best way to try to win.
"Of course, these teams are beatable. They are strong teams and have worked for a lot of years.
"This club is just starting to think and to work as a big team, bringing in very good players. It has a very important history, but in the last four years they have been trying to have the power to fight with the most important clubs.
"We are going the right way and I'm absolutely sure we can beat any other team. The most important thing is to have the right mentality.
"The players must feel they can do important things, have the ambition to win. Not only in the Premier League, but also in the Champions League and Capital One Cup. These players should have targets."