AI-led sell-off weighs on markets, but an earnings rebound could change the mood: Vinit Sambre

A week ago, sentiment on Dalal Street was optimistic. Progress on trade with the US and EU, together with a largely acceptable budget, had put markets on a strong footing. But a sharp AI-led global rally has since diverted flows, triggering a decline in domestic stocks. Vinit Sambre of DSP Mutual Fund believes the bigger picture remains constructive despite the short-term volatility. “I see a lot of improvement in domestic macros over the last year: interest rate cuts, GST benefits, income tax benefits and the US trade deal. A lot of the macros are falling into place now,” he said, adding that earnings cuts appear to be largely behind us and valuations are becoming “more reasonable.”

The key missing piece, he argued, is earnings growth. “Growth is the key ingredient. The good profits have fallen from 18-19% to 7-8%, which has dampened sentiment. We need the visibility of growth to come back – that will be the trigger for the markets to move higher,” said Sambre. He also pointed out that a stabilizing rupee could help improve foreign investor sentiment.

Sector-wise, banks could lead the recovery. “Banking was subdued for two years, but pressure on NIM is turning. If banks show 15-17% growth, it could be a key driver of overall profits,” he said.

In terms of consumption, Sambre prefers discretionary consumption over basic products. “As income levels rise, people are looking beyond basic needs. I am more positive on consumer durables than FMCG,” he said, highlighting autos, hospitals, jewelery and insurance as strengths. He expects that white goods and consumer durables will also gradually improve.

Healthcare continues to achieve steady growth, while IT is in a transition phase. While near-term uncertainties remain, he believes that AI adoption can ultimately create opportunities for Indian IT companies.

On valuations and downside risk, Sambre advised not to obsess over another 8-10% correction. “Valuations look reasonable after underperformance. More importantly, we need visible signs of picking up business momentum. Today, noise levels are high and there is overreaction,” he said. For now, markets are balancing improving domestic fundamentals against global AI-driven capital shifts. The next decisive step may depend less on headlines and more on delivering on promised gains.