Harsha Upadhyaya, CIO-Equity, Kotak AMC, says that the current earnings growth trajectories remain unchanged, a factor needing improvement for further market gains. A modest earnings growth pickup is anticipated in the second half of FY26, offering slight improvement from previous quarters. Expected credit growth improvements are predicted to contribute to a gradual market rise during the latter half of the fiscal year.
Upadhyay is currently overweight on domestic businesses like financials, cement, capital goods, oil & gas, telecom, and power, citing resilience and earnings growth. They are monitoring the tariff situation for India before reviewing export-oriented positions. Chemicals is one export sector where they maintain an overweight position due to India's competitive advantage.
There has been a lot of negative news flow, but markets have done reasonably well. What’s in store in the second half of this calendar year ?
Harsha Upadhyaya: Clearly, the market at this point of time is lacking big triggers on either side. So, to that extent, probably it is going to consolidate at around current levels. Valuations have been on the higher side, but at the same time, the macro environment has been quite benign and if some of the tariff and geopolitical issues get resolved over the next couple of months, then probably that should also add to positive sentiments.
When you look at it from a more bottom-up perspective, you are not really seeing earnings growth trajectory changing at this point of time. It is something that we will want to see if markets were to move higher. Our expectation is that probably in the second half, we will see some sort of pick up in earnings growth, but it is still not going to be very exciting but from the levels that we have been for the last couple of quarters and probably in this quarter as well, the first quarter of FY26, we should be able to see some improvement in earnings. We are expecting some improvement in credit growth. All these factors should enable markets to inch higher in the second half.
There are such solid macro conditions – low interest rates, abundant liquidity, good monsoon, inflation coming down, interest rates down 100 bps – but still earnings are not coming. The question is if they have not come yet, why will they come now?
Harsha Upadhyaya: Usually it takes a little bit of time for credit growth to pick up and once the credit growth picks up, you will see improvement all around. While things have been fine at the macro side, we have really not seen a dip in commodity prices which is also crucial for margins to inch up when the volumes are not coming. There are a couple of factors that still need to get addressed and over the next couple of quarters, we should be able to see that
While the margins will be overall okay, I do not think you can see much of an improvement with lower volume growth and higher level of volume growth would be possible when the rural economy starts to do well or some of the pricing issues are sorted out in some of the other areas. So, overall, that is the reason why markets do not have much steam at this point of time to move higher unless liquidity pulls it up given the fact that things have not been so great at the corporate earnings level. However, from a historical perspective, whenever macroeconomic factors start to become benign and supportive, over a period of time, corporate fundamentals also get better and that is the hope we have at this point of time.
Where are your biggest overweights and underweights in the market right now?
Harsha Upadhyaya: We are still tilted more towards domestic businesses. There is a lot of resilience. At least, there is some bit of earnings growth, some bit of volume growth. There are no headwinds like what is going to happen on tariffs, etc, and that is the pocket where we have been overweight at this point of time. It would be different in different funds, but generally financials, cement, capital goods in some portfolios, oil and gas in some portfolios.
We also have exposure to telecom, power, etc, which are all domestic oriented and have very little to do with overall tariffs or some of the issues that are there in the global market in terms of growth. We would wait for another couple of days to see what happens on the tariff front for India in specific. After that, we will review some of our export-oriented positions. We are overweight on one of the export oriented sectors which is chemicals, where India continues to have a relative competitive advantage over some of the others which are likely to have higher tariffs than us.
Also, the industry has seen a bit of a turnaround in terms of some improvement in margins, some destocking that has helped the overall industry, etc. So that is the only pocket among export-oriented sectors where we have an overweight, rest all are domestic oriented.
Source Name : Economic Times