Indian market performance has lagged global indices so far this year, but conditions for an earnings recovery are improving, said Dhiraj Agarwal, Managing Director at Ambit Investment Managers. business line in an interview. “There is an earnings slowdown, but there is no earnings crunch. Earnings growth will pick up in the second half of FY26,” he said, pointing to the GST rate cut, lower interest rates and a potential trade deal with the US as key catalysts.
How do you see the recent market momentum, supported by improving corporate earnings, and can it sustain?
While the Nifty 50’s 8 percent performance this year is decent, Indian markets have been one of the worst performers this year. MSCI World is up 20 percent this year, and MSCI EM is up 30 percent. Smart earnings growth has slowed to 6-7 percent in FY25 and H1FY26, compared to 16 percent year-on-year in FY24. However, macroeconomic conditions favor earnings growth to accelerate going forward, which should support market momentum.
What is your outlook for the Indian equity markets in the next six to twelve months?
The macroeconomic background for an improvement in profit growth is all in place. The GST rate cut in September is meaningful and structural and, combined with the income tax rate during the budget, should help demand growth. Both together represent a stimulus of almost INR 2 trillion. Interest rates have fallen and I hope that we will soon sign a trade deal with the US that can revive our export industry. Export-oriented sectors are major employers, and strong growth will contribute to job creation, and thus consumer demand. So in short, I expect earnings growth to pick up in the second half of the year 26 – and this would benefit equity markets over the next six to 12 months.
Which sectors are best placed to drive Indian earnings growth in the coming quarters?
This is a stock selection market, not really a sector themed market. A key feature of the market right now is that there is no other theme than the 2014-2020 period, when consumption was driven, and when capital investment was a main theme in the 2021-2024 period. There is a profit slowdown, but a profit crisis. This is an important distinction to understand. During the last earnings slowdown phase of 2018-2020, there was an earnings crisis. So stocks, whose earnings predictability was high, attracted all the capital and did well, and the valuations didn’t matter. Nowadays, picking stocks is more difficult because you need to be aware of both earnings and valuations. I believe that relatively cheaper, valued names, with a similar earnings trajectory, will do well across all sectors. One sector where many such names appear on the filter is BFSI. So if I had to name a preferred sector, I would choose BFSI.
Foreign investors returned to being net sellers in November after becoming buyers in October. What has changed and what does that mean?
FPIs in general have been reducing their weight in India for the past five years. FPI ownership of Indian equities has fallen from 20 percent in 2017 to around 17 percent now. This year too, while we have seen a few months of positive flows, FPIs have sold around $15 billion worth of Indian equities. And it’s not hard to understand why! Over the past decade, Nifty has returned around 11 percent per annum in USD terms, severely underperforming US markets. The S&P 500 has returned 15 percent per year over the same period, and the Nasdaq 17 percent per year. I think October was more of a short-covering buy as optimism on the GST rate cut became more ingrained. Thereafter, the FPIs resumed their cautious stance towards India.
Many global funds are currently underweight India within the global emerging markets segment. Do you expect this to continue or is there a change coming?
FPI money will follow earnings. According to Bloomberg, the S&P 500’s earnings growth for the current quarter is 14 percent YoY, while Nifty is posting just 6 percent. If our earnings growth rebounds strongly in the second half of the year, the FPIs will be forced to change their underweight stance.
How do you expect the impact of global factors such as US interest rates or geopolitical events to be absorbed by Indian markets?
The global environment has become unpredictable. Many of the established post-war beliefs are now being challenged. Will the USD retain its position as the world’s reserve currency? How will the trade wars ultimately be resolved? And then there is AI. US companies are reducing workforces despite rising revenues and market capitalization. This has never happened before. Global factors will keep markets volatile.
How do you expect the benchmark indices to end the year?
I wouldn’t want to take a chance on two months of Nifty 50 performance. But I do expect profits in the second half to be significantly better than in the first half, meaning the trend should continue up. I should add a caveat here: market movements are unlikely to be linear, and we could see periods of volatility.
What is your outlook for gold and silver after the recent rally?
Everyone asks me that, and commodities are notorious for being impossible to predict. Unfortunately they have no eps or cash flow. The supply-demand dynamics are often accentuated by demand in the financial markets; making even that an imperfect sign. All I can say is that as long as confidence in the USD remains low and central banks continue to stockpile gold as an alternative reserve, the trend can remain high. But it is also impossible to predict when this demand will suddenly stop. So my advice here would be to use the ‘trend following’ system, but be prepared to run if you notice any problems!
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