India’s market performance has lagged global indices so far this year, but the setup for an earnings rebound is improving, Dhiraj Agarwal, Managing Director at Ambit Investment Managers told businessline in an interview. “There is an earnings slowdown, but there is no earnings crisis. Earnings growth will pick up in H2FY26,” 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 backed by improving corporate earnings, and can it sustain?
While the 8 percent performance of Nifty 50 this year is decent, Indian markets have been one of the worst performers this year. MSCI World is up 20 percent year-to-date, and MSCI EM is up 30 percent. Nifty earnings growth has slowed to 6-7 percent in FY25 and H1FY26, compared to 16 percent year-on-year in FY24. However, the macro backdrop is benign for earnings growth to accelerate going forward, which should help the market momentum.
What is your outlook for India’s equity markets over the next 6–12 months?
The macro backdrop for an earnings growth trajectory to improve is all there. The GST rate cut this September is meaningful and structural, and coupled with the income tax rate during the budget, should help demand growth. Both put together is almost an INR 2 trillion stimulus. Interest rates have been coming down, and I hope we will sign a trade deal with the US soon, which can revive our export industry. Export-oriented sectors are large employers, and strong growth will help job creation, and hence consumer demand. So, in a nutshell, I expect earnings growth to pick up in the H2FY26 – and this would help equity markets over the next 6-12 months.
Which sectors are best placed to drive India’s earnings growth in the coming quarters?
This is a stock-picker’s market, and not really a sector-theme market. In fact, one key characteristic of the market as of now is that there is no theme unlike the 2014-2020 period which was consumption-led, and when capex was a main theme during 2021-2024. There is an earnings slowdown, but there is no earnings crisis. This is an important distinction to understand. During the last earnings slowdown phase of 2018-2020, there was an earnings crisis. Hence, stocks, where earnings predictability was high, attracted all the capital and did well, and valuations did not matter. Today, stock picking is harder because one has to be cognizant of both earnings and valuations. My view is, relatively cheaper valued names, with similar earnings trajectory, will do well across all sectors. One sector where many such names do appear on the filter is BFSI. So if pushed to name a preferred sector, I would go with BFSI.
Foreign investors have become net sellers again in November after turning buyers in October. What changed, and what does it mean?
FPIs, by and large, have been reducing their weight in India for five years now. FPI holding of Indian equities has come down from 20 percent in 2017 to about 17 percent now. In the current year too, while we have seen a few months of positive flows, FPIs have sold about USD 15 billion of Indian stocks. And it is not difficult to understand why! Over the last decade, Nifty in USD terms has delivered about 11 percent per annum returns, severely underperforming the US markets – S&P 500 over the same period has delivered 15 percent per annum, and Nasdaq 17 percent per annum I think October was more of short-covering-led buying as the GST rate cut optimism was being baked in. Post that, FPIs have resumed their cautious stance on India.
Many global funds are currently underweight on India within the global emerging markets segment. Do you expect this to continue or there is a turnaround coming?
FPI money will follow earnings. As per Bloomberg, for the current quarter, S&P 500 earnings growth is tracking 14 percent y-o-y, while Nifty is delivering just 6 percent. If our earnings growth rebounds strongly in the H2, FPIs will be forced to change their underweight stance.
How do you expect the impact of global factors such U.S. interest rates or geopolitical events to be absorbed by the Indian markets?
The global environment has become unpredictable. Many of the established post-war beliefs are now being challenged. Will USD keep its position as the reserve currency of the world? How will the trade wars eventually be resolved? And then there is AI. US companies are reducing headcount despite rising revenues and market cap. This has never happened before. Global factors will keep the markets volatile.
How do you expect benchmark indices to close the year?
I would not like to hazard a guess for two months of Nifty 50 performance. But I do expect H2 earnings to be significantly better than the H1, which means the trend should remain up. I must caveat here saying, market moves are unlikely to be linear, and we could see bouts of volatility.
What is your outlook for gold and silver after the recent rally?
Everyone is asking me that, and commodities are infamous for being impossible to forecast. Unfortunately, they do not have eps or cash flow. Demand-Supply dynamics are often accentuated by the financial markets demand; hence making even that an imperfect sign. All I can say is so long as the trust in the USD stays low, and central banks keep amassing gold as an alternate reserve, the trend can stay up. 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 ready to run, if you spot trouble!
