'Beginning of the end’ for earnings downgrades, says Spark Capital’s Devang Mehta as festive demand fuels optimism

Indian company earnings so far for the September 2025 quarter show a mixed performance. Key sectors like financials and automotive showed robust domestic-driven performance, while export-oriented sectors like IT faced headwinds.

The current quarter's results suggests that we are near the beginning of the end of earnings downgrades. Management commentary accompanying recent Indian quarterly results generally reflects strong domestic growth driven by capital expenditure and robust demand, though some sectors face headwinds from global uncertainties and currency fluctuations.

Do you expect earnings growth estimates to see further upgrades in the coming quarters?

EPS estimates for FY25 and FY26 have seen some modest downgrades, primarily due to the underperformance of some heavy weights in the key indices. Corporates are confident that second half of FY26 will be stronger primarily driven by the festive & wedding season, lower inflation and interest rates, revival in rural demand and a low base effect from the previous year. Probability of growth estimates in a lot of domestic oriented companies seeing upgrades, with good macros being catalysts, is quite high.

Do you think the RBI could cut interest rates in December if the India–US trade deal is not signed in the next few weeks?

Multiple factors, including declining global commodity prices, beneficial weather conditions supporting agricultural output, weakening domestic demand pressures and limited wage growth despite tighter labour markets, will ensure that inflation remains well within the RBI's target.

Given the outlook for growth and inflation, there appears to be adequate space for a 25 bps rate cut. Also, with the US cutting rates, participants expect RBI to also move in the same direction.

Do you foresee an upward revision in full-year growth estimates if demand sustains beyond October?

India’s economy got a lift from the festive season, though it’s too early to gauge how lasting the impact will be. Festive spending and GST cuts have given a short-term boost and we now have enough evidence to show that firms have cut prices. Stronger data points have emerged across indicators like auto sales and bank credit to manufacturing activity.

If this demand continues beyond October and into the subsequent quarters, it is highly likely that some of the more conservative estimates might also see further upward adjustments, or at least solidify the current elevated forecasts.

Which one sector do you believe is indispensable in a portfolio for the coming quarters?

It's very difficult to pick one sector but a combination of discretionary consumption-oriented sectors like auto, auto components, capex oriented sectors like power and renewables, engineering and manufacturing and financial intermediaries to financialisation proxies should be integral part of portfolios.

Do you expect the market’s ongoing consolidation phase to continue if there is a further delay in the India–US trade deal?

The markets have seen a time correction of almost one year. While all global markets have rallied, India has drastically underperformed developed and many emerging markets. The FPI’s have also been sellers for most of this period. Sentiment towards equity as a wealth creation tool has been a big positive change across class of domestic investors be it HNI’s, family offices or retail.

Some consolidation can't be ruled out but most importantly, the next rally will see companies with strong earnings growth and cash flows come to the fore and create wealth for investors.

Have you started adding positions in the chemicals sector?

Indian chemical producers are experiencing a balanced operating environment, the best in nearly two years. Crude oil prices have settled in a stable range, reducing feedstock volatility and leading to expected margin improvement. Restocking activity has picked up across key end-user industries such as paints, fertilizers, packaging, and pharmaceuticals following the monsoon season.

Export orders from Asia and Europe are also showing sequential improvement. Recent quarterly results show a positive trend for few portfolio companies. However, it's very important to be stock specific rather than being bullish on the entire sector.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.