The earnings season has simply begun.
Mahesh Patil: Sure, markets have seen a fairly good rally over the past two to a few months, not simply in India however globally. We have seen the S&P and different US indices breach earlier peaks, and that is the place the larger problem lies. A few of the considerations—be it geopolitical dangers or tariffs—at the moment are easing, with a bit extra readability rising. We’re seeing some commerce offers being signed. India too is predicted to signal one quickly, which can be extra beneficial in comparison with others.
So, whereas there’s some uncertainty, the market would not appear overly involved. The main focus is clearly on earnings progress and whether or not we’re starting to see a shift in that trajectory. During the last three to 4 quarters, earnings have grown solely in single digits. The market is in search of a turnaround. Even this quarter will not be too robust—we’re anticipating mid-single-digit progress—however as we transfer into the second half of the fiscal 12 months, earnings momentum ought to decide up. That will likely be pushed not simply by a decrease base but in addition by a restoration in sectors that had been weak final 12 months. This could assist form the market’s course transferring ahead.
For now, we anticipate the market to stay in a slender vary. It has turn out to be extra stock-specific. Clearly, firms that report better-than-expected earnings are being rewarded, whereas those who disappoint are getting punished. We’re now in a section the place macro elements are subdued, and it’s the micro elements that may drive the markets from right here.
You spoke at size about earnings expectations—mid-single-digit progress is what you are anticipating. However which sectors do you imagine might outperform on the earnings entrance, and which of them may underperform?
Mahesh Patil: From an underperformance perspective, a few of the bigger sectors are dragging total progress. For instance, the banking sector is more likely to see muted progress resulting from NIM compression following price cuts. In IT, a couple of outcomes have are available, and once more, progress appears decrease. Even within the auto sector, progress will probably be considerably weaker.
Then again, sectors that would present greater progress embody oil & fuel. Final 12 months was a washout, particularly for oil advertising firms. With oil costs now down and advertising margins trying robust, we might see a giant soar—largely as a result of base impact and improved margins. The cement sector can be recovering after a troublesome 12 months with EBITDA per tonne on the backside—so some enchancment is predicted there.
The telecom and pharma sectors ought to stay pretty regular. These sectors might see some upside, however the remaining will probably carry out in step with common progress traits.
The final time we spoke, you stated the markets had largely priced in each the positives and negatives, and the range-bound habits has continued since. Given the continued uncertainty round tariffs and lackluster earnings, what might set off the subsequent leg up out there?
Mahesh Patil: As I discussed earlier, the important thing lies in bettering the earnings trajectory. We’ve been caught in a zone the place total earnings progress has remained within the mid- to high-single digits. The current GDP print, whereas robust in actual phrases, was solely round 9.5% nominal, largely as a result of CPI has dropped to about 2.5%. That displays an absence of pricing energy.
Nonetheless, there are positives: the affect of straightforward financial coverage, higher system liquidity, and an excellent monsoon might all assist a pickup in shopper demand within the second half. That, in flip, ought to enhance pricing energy throughout the board—notably in shopper and shopper discretionary sectors. This might turn out to be the set off for the market to regain momentum.
Inside the shopper discretionary basket, is there any explicit phase you favour at this level—autos, retail, or one thing else?
Mahesh Patil: Within the auto sector, two-wheelers might do higher within the second half. Some shopper sturdy firms are going via a weak quarter, partly resulting from seasonality and the early monsoon. However as we transfer forward, we anticipate this phase to enhance.
Additionally, the transmission of tax cuts and the upcoming Pay Fee revision—a once-in-a-decade occasion—might result in greater disposable earnings for PSU staff. That’s truly an even bigger stimulus than the ₹1 lakh tax minimize we’re seeing this fiscal 12 months. So, that pattern might proceed nicely into the subsequent fiscal.
On this context, shopper durables and retail firms stand to learn. Even constructing supplies are presently seeing weaker progress, however as new housing development picks up, we must always see demand recuperate with a lag.
So, I’d say these are the areas the place the current tax advantages and the Pay Fee bonanza might drive progress.
