On the earnings front, Bagga believes the Indian market is nearing a recovery phase in the next two quarters. He noted that the September quarter will mark the trough of downgrades, with markets already expecting stronger performance in the December and March quarters.
Previously, expectations of a recovery in June were postponed due to a combination of the Prime Minister’s speech on August 15 and the VAT cuts on September 22, which led to widespread spending deferrals. As a result, earnings for the September quarter, especially for durable and basic goods producers, will be subdued.
The financial services industry is still recovering: microfinance loans have largely been written off, but unsecured lending remains a drag, leading to tepid overall results despite strong performances from industry leaders. Bagga expects the market to enter a catch-up mode after thirteen months of underperformance.
On consumption, Bagga highlighted the difference between urban and rural demand. Rural consumption is robust due to government transfers and support for 80 crore people, but urban consumption remains subdued due to sluggish wage growth and inflation. Major MNC FMCG players, which mainly focus on urban and semi-urban markets, have seen tepid volume growth, leading to high valuations that are not yet justified by results.
“What has happened is that urban consumption has lagged, so urban demand has lagged while rural demand has been quite strong, especially as food grains and all that spending has been taken over by the government for 80 million residents. So there are systemic transfers happening at the bottom of the pyramid, but the middle bulge of the entire population has not seen wage growth of that magnitude as the inflation has risen throughout the covid period and beyond, so that’s what we are. see play in urban consumption. Rural consumption is strong and all these players are largely in the urban and semi-urban sector,” he said. Bagga expects a post-VAT consumption boom to benefit cars, car accessories and durable goods, but emphasizes the need for further fiscal stimulus – especially in the February budget – to boost overall urban demand. While monetary easing by the RBI and previous VAT cuts have been supportive, private wage growth and private capital investment remain subdued. On macro and global factors, Bagga expects the US Federal Reserve to cut interest rates due to a slowing labor market, despite inflation hovering around 3-3.1%. He cited the impact of tariffs and oil prices as key variables affecting markets, noting that any changes in inflation or global trade dynamics will be closely watched by investors.
In terms of sectors, Bagga was cautious on telecoms. He suggested focusing on market leaders like Bharti and avoiding highly leveraged players like Vodafone Idea, which remains exposed to regulatory and debt risks. He emphasized that early strategic moves, capital raising and pricing power have benefited strong incumbents, reinforcing his preference for sector champions over turnaround narratives.
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