FY26 may end with low double-digit earnings growth; auto and fertilisers are sectors to watch: Shibani Sircar Kurian

Time of India

a day ago

Shibani Sircar Kurian
, Senior EVP, Sr. Fund Manager & Head -Equity Research,
Kotak Mahindra Asset Management
, says Indian markets show promise with a focus on domestic sectors. Policy support, including tax and rate cuts, aims to boost consumption. Favourable monsoons and improving rural demand are positive signs. Corporate profitability is expected to rise. Automobiles and fertilizers are sectors to watch. Lifting of export curbs by China is a major breakthrough.
How do you read the market given that so much has happened over the weekend and the last two days as well. You have news coming in on textiles. There is news of China allowing export of rare earth metals, tunnel digging equipment, fertilisers to India and all those stocks are doing very well. With so many tailwinds and demand boosts, would it be safe to say that only good days lie ahead for the markets?
Shibani Sircar Kurian
: Calendar year to date, India despite having fairly stable macro parameters has underperformed compared to the emerging market pack. Our view has always been that given the uncertainty of what is happening on the trade and tariff front, especially globally, it is better to be looking at domestic facing sectors where demand trends appear to be improving. The recent changes that have happened from a policy perspective have all been supporting this thesis and therefore, our overall focus remains on domestic facing sectors.
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If you take a step back and look at it, starting from the Budget which resulted in tax cuts at the mass income segments, we have seen policy rate cuts by the RBI and now the recent announcements as far as
GST rationalisation
is concerned, all have been aimed at boosting domestic consumption, especially discretionary consumption. Therefore, that is one factor to look at. So, policy clearly is supportive.
Second, monsoons continue to remain quite favourable and apart from the monsoons, in terms of data, we have seen signs that rural demand is clearly on an uptrend. That is the other segment which has seen an improvement as far as demand goes and we are moving into the festive season.
The third aspect is the quarterly earnings and corporate profitability. Last year saw fairly muted trends on corporate profitability. Q1 saw numbers that were largely in line with estimates and our expectation is that going into the festive season and the second half of the year, given the kind of policy boost we have seen, we should start seeing some improvement in corporate profitability. That means that FY26 will possibly end with low double-digit earnings growth.
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In this context, our largecap valuations as far as Nifty is concerned, is trading at a slight premium to its long-term averages. Midcaps are also at a slight premium while smallcaps are at a significant premium to long-term averages. In that construct, when we look at the Indian multiples and premium of India's valuation as compared to the EMs, the valuation premium has come down to long-term average levels. We believe that risk-reward for the market is favourable for largecaps and to some extent midcaps, but one has to be very selective and stock specific within the mid and smallcap bucket. In India today from a domestic macro perspective, we continue to be fairly well placed.
Many uncertainties are coming from the global front and in particular, the tariff jitters are still up and running but at the same time we also see positive news flows. In a major breakthrough, China has lifted export curbs on fertilisers, rare earth, and tunnel boring machines. How do you see the automobile sector performing on the back of these news flows? The fertiliser stocks have seen an upsurge post this news flow as has the automobile sector.
Shibani Sircar Kurian:
Absolutely. Automobiles as a segment was underperforming and has been a laggard. However, as we were discussing, apart from the news flow that you mentioned, the policy support that is going into the segment starting from the tax cuts as well as the rate cuts announced by RBI, all culminating into GST rationalisation proposals, there is a concerted policy focus in terms of boosting demand, especially at the bottom of the pyramid that therefore helps in segments of automobiles especially at the entry level four-wheeler segment as well as on the two-wheeler space.
The other factor which is working well for the sector is that rural demand which was missing for a considerable period of time -- with inflation now remaining under control – real rural wages have started to move up and therefore that is positive vis-a-vis demand for two-wheelers and entry-level four-wheelers. The two-wheeler space is something that we are positive on, as well as some parts of the passenger vehicle segment where demand should improve. Of course, the proof of the pudding would be seen going into the festive season.
The same corollary holds true for the fertiliser space as well. Monsoons, having been good, is likely to boost demand for the fertiliser and the agrochem pack, especially those which have a lot of demand from the domestic-facing segments. Within the pack, both of these segments benefit significantly from the recent announcements that have been made on the policy front.
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