According to Abhishek Banerjee of Lotusdew, it is possible that markets ending the current financial year with around 15% gains despite tariff-led volatility. But "I am more bullish about smaller companies that have more domestic business," he said in an interview to Moneycontrol.
Larger companies have borrowings and rising rates negatively impact their interest costs or refinancing plans. Compared to this smaller companies produce more real earnings or better inflation adjusted earnings, he reasoned.
In June quarter earnings, metals could surprise as there is strong domestic demand, said the smallcase manager and Founder at Lotusdew Wealth who has assets under management worth Rs 1,000 crore.
Do you think the India–US trade deal will have a significant impact on India’s corporate earnings?
Trade deal is inflationary and it will create headwinds for growth factor which is a dominant factor for India apart from momentum. Corporate earnings will get impacted as margins will shrink to absorb the tariffs. This is like an invisible tax that end consumers, shareholders will have to pay.
Since financials is a value play generally, and also given that they are more domestic business than export led, this sector can see some upward rerating due to preference of value stocks in the shorter term. Export led sectors like auto, and pharma can see some downward re-ratings.
Do you see the markets ending the current financial year with around 15% gains, despite tariff-led volatility?
Its possible, but I am more bullish about smaller companies that have more domestic business. The reason is that larger companies have borrowings and rising rates negatively impact their interest costs or refinancing plans. Compared to this smaller companies produce more real earnings or better inflation adjusted earnings.
Also, some of the largest companies in India are in IT services which could face non-tariff barriers like reduced immigration and reshoring of critical operations which can negatively impact them too.
Finally we need to account for the fact that our exports are increasing which can reduce current account deficit structurally strengthening rupee. This is actually a positive which will balance out the factors mentioned above. We need to observe what remains the eventual driving force among this.
Do you believe that the June quarter earnings and accompanying management commentaries will play a pivotal role in setting the tone for full-year performance?
Earnings are seasonal for each kind of business. A seasonally adjusted earnings comparison is preferable where we compare YoY earnings instead of QoQ - which paints a better picture. Management commentaries are a great source to understand the way operators see an industry versus analysts. Promoters have much more control over the outcome in terms of capital allocation, lobbying for preferred policies and ability to find new markets to add revenue streams. So how they perceive the next few months will remain crucial.
Do you strongly believe that tariff-related fears will not derail India’s economic growth, and that GDP growth could still come in close to 7% for FY26?
It’s not going to derail. The primary reason is that goods export from India is more in the premium segment which is less price sensitive. This is not the case with China or Vietnam for example. Hence, even if there is some tariff we could see that these price increases will get absorbed by end consumers instead of companies that much. This can actually lead to higher output numbers which can have a positive impact on GDP print - but will come with inflation as well.
Which sectors do you believe could surprise the Street with their June quarter earnings performance?
I think metals could surprise as there is strong domestic demand. Also recent PMI of 61 in India is a surprise to many, and services sector especially business engage in B2G can surprise. Finally, consumer durables and staples can surprise too as the excess consumption from reduced tax burden could start to feed through some of these kind of sub sectors.
In your view, what could be the dark horse sector(s) for the remainder of FY26?
Detachment from global headlines could be the dark horse. This has a dipropionate positive impact on smaller companies and I see more upside risk from not participating in smallcaps. We have to remember that PEs need to be adjusted for relatively inefficient PSUs that are on average producing much higher efficiency - so instead of 10 year comparisons of PE - we should perhaps adjust it to years from when efficiencies are being extracted by better control on PSU.
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.
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