Moneycontrol Pro Weekender | What's Driving Indian Stocks Into Year-End

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Dear Reader,

The September quarter earnings season is in full swing. A strategy report from Kotak Institutional Research, traditionally a conservative outfit, summed up the results so far thus: “The 2QFY26 earnings season shows (1) subdued trends in mass consumption items but an uptick in select discretionary segments, (2) modest IT services demand and (3) moderate loan growth for banks.” The report says there has been a mild uptick in earnings estimates, with both Kotak and consensus estimates forecasting earnings growth of 10 percent for the Nifty 50 in FY26 and 17 percent in FY27.

What then should we expect for the second half of the fiscal year? Let's start with what might be the most consequential policy move in recent months – the GST rate cuts. This isn't just about cheaper shopping; it's about reigniting a consumption engine that's been sputtering.

The auto sector has been revving up and Maruti Suzuki is seeing a much-awaited rise in first-time buyers following the rate revision. Wisely, though, our analyst notes that the true impact will only become clear over the next two to three months. The automobile story extends beyond passenger vehicles —  Shriram Finance stands to benefit as the GST reduction drives demand across vehicle finance and MSME segments.

But here's where it gets interesting. Our analyst says the outlook for Pidilite’s growth trajectory will remain strong, supported by a favourable monsoon, GST 2.0 benefits, and rising construction activity driven by low interest rates and ample liquidity. When construction picks up, it's not just about cement and steel; it's about adhesives, paints, and a whole ecosystem of allied products.

The stakes couldn't be higher. With only 2.8 percent tax revenue growth in H1, the government's fiscal roadmap is banking heavily on a consumption rebound fuelled by GST cuts and lower rates. Any shortfall risks spending cuts and a tighter FY27 budget. In other words, this isn't just an opportunity — It's a necessity.

A key positive has been favourable monsoons. Good rains equal better harvests which lead to higher rural incomes which spurs rural spending, resulting in corporate earnings growth. Shriram Finance is perfectly positioned to capture this wave. Godrej Consumer has shown resilience amid disruptions, with margins expected to stabilise and multi-fold growth opportunities ahead — rural demand being a critical piece of that opportunity.

Even Crompton's outlook brightens despite unseasonal rains hitting Q2 demand, with the revival in lighting and kitchen businesses serving as key growth drivers – products that find strong demand in improving rural households. Indian Hotels retains its double-digit growth guidance for FY26, with a robust outlook for H2 -- The revival in both business and leisure travel creates a powerful tailwind.

There are also signs of the credit cycle turning — We wrote that bank credit growth is poised to run beyond the festive spurt. That may well indicate the long-awaited revival in the investment cycle. Infrastructure lending is growing at a one-year high rate, and this isn't just a statistic  — It's a signal. SBI, which is practically a proxy for the economy, delivered a strong Q2 with management expecting 12-14% credit growth in FY26, critically noting that corporate credit is likely to post double-digit growth, supported by a robust sanction pipeline of around Rs 7 lakh crore.

When corporate credit grows, everybody wins. Power Grid Corporation is seeing execution bottlenecks ease, with good earnings visibility on the back of asset capitalisation, an expanding project pipeline, and a multi-year capex roadmap.

Domestic demand alone doesn't tell the whole story. External demand – through exports, international expansion, and global partnerships – is important, despite Trump’s tariffs.

IndiGo sees significant upside potential from international expansion and strong H2 FY26 demand. As travel normalises globally, airlines with strong networks stand to benefit disproportionately. BEL is actively pursuing global export opportunities, leveraging its robust product portfolio and partnerships with international defence organisations. In a world that's re-arming and reconfiguring supply chains, Indian manufacturers with proven capabilities are finding receptive audiences. MTAR Technologies has raised its annual revenue guidance despite a weak Q2.

Here's a fascinating subplot that often gets overlooked: India's gold loan market has expanded by a massive Rs 1 lakh crore in the last six months, unlocking the vast, dormant wealth of India's unproductive family gold hoards. This "golden ATM" is providing liquidity when households need it most —  for business expansion, education, consumption.

The telecom sector provides another liquidity story of a different kind. Bharti Airtel maintains its strong run, with sum-of-the-parts valuation indicating nearly 10 percent upside to current market price. Companies generating strong free cash flows are in a position to invest, acquire, and return cash to shareholders — creating multiple pathways to value creation.

But while we may have growth, are you paying the right price for that growth? As Warren Buffett reminded us, "Price is what you pay, value is what you get." And right now, we're seeing an important recalibration: India's pandemic-era valuation premium over emerging market peers has fallen below the decade average in what analysts are calling a "healthy reset". This correction creates breathing room and potentially attractive entry points for long-term investors.

But selectivity remains paramount. Pidilite trades at 57x estimated FY27 earnings – a rich valuation leaving limited margin for error, even for a quality business. Tata Consumer commands 53x FY28e P/E, though analysts believe the premium is justified, given strong earnings potential and an expanding food portfolio.

BEL trades at 38x FY28 earnings – not cheap, but reasonable, given earnings visibility and growth opportunities. IndiGo at 8.1x FY28 EV/EBITDAR offers compelling value for a market leader with visible growth levers. In some cases, a weak quarter may be a boon — We said Mas Financial is a core holding to be added in this weak phase.

Then there are cautionary tales. Urban Company trades at 8.7× FY28E EV/Sales, reflecting confidence in sustained high growth, but profitability and cash conversion are yet to catch up, with free cash flow turning negative. Thangamayil Jewellery has seen a steep run-up, with the stock having priced in most positives despite robust fundamentals. Kaynes Technology’s high valuation prices in the positives that may take time to fructify.

Quality companies with strong ROEs still command attention. Canara Robeco AMC, despite muted Q2 earnings, offers upside potential, given its 30%+ ROE and future growth levers, with the price correction amid regulatory concerns creating opportunities for long-term investors.

As we look towards the second half of the fiscal year, the Indian equity story is being written by powerful, intersecting themes:

The consumption revival – supported by GST cuts – is real but needs to be sustained. The government's fiscal health depends on it.

The rural tailwind – powered by a good monsoon – is creating genuine demand across sectors, from vehicles to FMCG to housing materials.

The investment cycle – visible in credit growth and infrastructure lending – may be finally turning after years of false starts.

The external opportunity – in defence exports, international travel, and global partnerships – is adding a new dimension to growth stories.

And finally, the valuation reset – bringing India's premium closer to historical averages – is creating opportunities, but selectivity matters more than ever.

As we head towards the end of 2025, the old question comes to mind again: Will we have a Santa Claus rally? The more consequential questions are: Will the IPO boom continue — We analysed the Groww and PineLabs issues. And globally, will AI valuations take a tumble? Which lead to the broader question: Are bubbles good, actually?

The song of the week is ‘Cautiously Optimistic’ by Baylee Lynn. The title says it all.

Cheers,

Manas Chakravarty

In case you missed them, here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity, and forex markets:

Stocks

IKS Health, TBO Tek, SJS Enterprises, Sun Pharma, Syngene, Coal India, GAIL, IEX, Coromandel International, Navin Fluorine

Financial Times

Nvidia’s Jensen Huang says China ‘will win’ AI race with US

Asian markets’ reliance on AI boom raises ‘bubble’ fears

Sequoia’s shake-up may be a VC turning point

Ruchir Sharma | Books, malls and cars: where the physical world still rules

Markets

Why brokers are demanding Bank Nifty’s return

While India restricts, US embraces 0DTE trading

Companies & Sectors

L&T’s rising overseas orders

Cipla

Pharma, healthcare see record M&As in September quarter

Long haul for e-buses to make a mark on Indian roads

Is there finally light at the end of the tunnel for microfinance loans?

Economy & Policy

IMF sees India’s fiscal deficit stalling after FY26

RBI’s huddle with dealers: Liquidity tightening or signalling risk control?

India’s R&D push — The reality and the dilemma

Tackling farmer distress requires imaginative long-term solutions

Pro Economic Tracker

Geopolitics & Geoeconomics

The Eastern Window: What are the risk factors in the US-China truce, and will it last?

A defence deal that can help fortify India-US ties

Beijing is winning the Asia-Pacific

Tech & Startups

Startup Street: Will the government’s mega RDI scheme boost innovation in startups?

No country can build tech capacity without open source, says Zerodha CTO Kailash Nadh

Others

Bihar's Job Promises: A confession of crisis

Personal Finance: Will gold’s shimmer dim?

Beyond Carbon: Why COP must bring life cycle thinking into the climate conversation