Domestic demand will boost markets as global trade momentum slows: Dhananjay Sinha

As India Inc enters the second half of FY26, expectations are high, but the optimism comes with caveats. Speaking to ET Now, Dhananjay Sinha, Systematix Group gave a dovish view on the corporate earnings landscape, cautioning that the road ahead may not be as simple as markets currently assume.Reflecting on the second quarter performance, Sinha noted that the overall numbers remain subdued despite visible efforts by companies to protect margins. “So as far as Q2 numbers are concerned, if we look at the Nifty numbers, this is basically a 6% to 5% grab on revenue growth,” he said. According to him, companies are tightening raw material costs and employee benefits to maintain profitability. Yet the overall picture remains bleak.

“I would say it’s still pretty lackluster. It’s low single-digit growth in terms of earnings,” he added. While the broader market appears to have done relatively better, Sinha questioned the sustainability of this difference given that the underlying economic cycle in corporate India is the same.What investors are banking on instead is a recovery in the second half, supported by earlier RBI rate easing, GST cuts and income tax rationalization. Companies are signaling brighter prospects and the market has priced in a stronger earnings trajectory, with expectations of 14 to 15% growth next year. But Sinha made a cautious observation: “I would say it is a little more complicated than what is believed.”

He pointed out that next year’s expected profit increase is partly a statistical effect, coming from a weak base coupled with a lackluster performance of the benchmark indices over the previous year. This has led investors to hope for better returns, even though fundamentals may not show a clear one-way trajectory.

Looking beyond FY27: Is FY28 the next big hope?
When asked about the broader horizon and whether the tailwinds could continue in FY28, Sinha urged restraint. “So FY28 will be a long-term affair. People are uncertain in the short term,” he said, noting that even as the RBI cuts rates, it is simultaneously working on easing regulatory restrictions on banks.

He quoted comments from RBI Governor, Deputy Governor and Chief Economic Adviser Anantha Nageswaran, all of whom have expressed concerns about the limited growth prospects for traditional banking. Relaxing regulations – including greater freedom on M&A and loan-to-value norms – can help, but Sinha believes the core challenge lies elsewhere.

“I don’t think the problem is regulation, it’s more about deposit growth,” he explained. Bank deposits have increased by approximately 9 to 10% for several years. With credit deposit ratios at peak levels and households already highly indebted, the scope to stimulate credit expansion remains limited.

This raises deeper questions about household income, savings behavior and the ability of banks to finance the next credit cycle. According to him, tax rationalization only offers a modest boost. Meanwhile, external demand signals remain unstable.

Global trade – which briefly boomed in early 2025 when the US brought forward imports in anticipation of tariff changes – is now losing momentum. “I think the global situation is not very favorable and I would say that Indian markets will largely be more domestically oriented,” Sinha said.

A nuanced way forward
The overarching message is that the outlook for India is neither bleak nor euphoric; instead, it is complex and layered. “All things considered, it will be a fairly nuanced context, rather than a one-way street that the market is anticipating over the next 12 months,” Sinha concluded.

For investors and policymakers, the coming quarters may provide clarity on whether the expected earnings recovery will take firmer shape – or whether optimism around FY27 and FY28 needs to be further recalibrated.