Economic recovery, consumption boost and turnaround in small caps: Varun Goel sees broad market optimism

Even as Indian equities remain within their range and the Nifty is down almost 1% this week, optimism about the broader economy and earnings rebound is increasing. According to Varun Goel, head of investments at Nippon India Mutual Fund, the current earnings season is “in line with or slightly above expectations”, paving the way for a potential turnaround across sectors.“For FY26, there is clearly an economic revival that we are seeing. Thanks to the three crore in tax cuts, a significant revival in central government infrastructure spending and a very supportive and accommodative monetary policy, these three things should push economic growth closer to 7% this year,” Goel told ET Now.

He emphasized that, after four quarters of downgrades, this is the first quarter to show the first signs of profit improvement, especially in the small and mid-cap sector. “We’re starting to see earnings getting better. And as far as the small and mid-cap sector is concerned, the turnaround there may be even better,” he said.

Doel also emphasized a realistic approach to market expectations. “If we look at the 30-year average earnings growth for Nifty 50, it has been around 11 per cent, and if you see the returns, it is more or less in that line,” he said, adding that markets tend to reflect earnings trends.

In terms of consumption prospects, Goel expects a strong rebound, driven by budget support. “As far as discretionary consumption is concerned, it will definitely get a boost from the one crores of tax cuts, two crores of GST cuts, and then the third tranche of that will be the eighth pay commission,” he said, naming autos, appliances and travel as key beneficiaries.

He remains constructive on real estate and metals, citing favorable policy support and steady demand. “We remain constructive on the sector as a whole… safeguard obligations in India will ensure that the profitability of some steel companies will remain quite robust,” Goel noted. Also read: IPO frenzy turns cloudy due to lack of transparency, says market veteran Sandip Sabharwal. Looking ahead, Goel expects stable inflation, strong GDP growth and a revival in small cap earnings to boost sentiment. “The bigger turnaround appears to be in the small cap sector… we expect a full turnaround with earnings growth of over 15%,” he added.