Alok Agarwal of Alchemy Capital Management is cautiously optimistic about the ongoing June 2025 quarter (Q1FY26) and the financial year 2025-26.
"The RBI projects FY26 real GDP growth at 6.7%. This optimism hinges on strong rabi crop output, healthy reservoir levels, and a rebound in manufacturing and services. The GST collections in May 2025 grew at 16.4% YoY, highest since October 2022. Corporate balance sheets are stronger than ever," he said in an interview to Moneycontrol.
According to him, the management commentaries from multiple sectors signal confidence. Further, he also sees earnings upgrades outpacing downgrades from Q1FY26 onwards. "The confidence comes from the improved state of macro growth and other indicators in India," said the Quant and Fund Manager at Alchemy Capital Management.
Do you see a major fiscal deficit issue in the US? Also, do you think the tariff factor will become less important for the market going forward?
The scale of US government debt has grown significantly, in our view, borrowing costs are elevated, and interest payments have become a heavier burden. We believe that currently, the US Treasury market is exposed to three major risks. First, the fiscal deficit could worsen without restraint. The Trump administration’s push for the "big beautiful bill" could further deepen the deficit if enacted. Second, term premiums might increase. Fears over the Federal Reserve’s potential loss of independence, along with uncertainty around fiscal stability and trade policies, can potentially drive investors to demand higher returns. Third, the peak in government borrowing is aligning with diminishing foreign demand, intensifying the imbalance between supply and demand.
The US’s debt is already approaching the size of the economy, double the level in Clinton’s era. In fiscal year 2024, the US deficit was equivalent to 6.4% (vs 50-year average of 3.8%) of the country’s gross domestic product — a level typically seen only during recessions. Rising interest payments, which exceeded spending on national defence or Medicare in FY2024, add to the deficit's burden. This could affect global capital flows, potentially impacting emerging markets like India, though the immediate impact may be limited by the US economy's strength. Over the long term, if deficits continue to expand uncontrollably, this could undermine the US dollar’s role as a global reserve currency and the perceived safety of US government bonds.
With respect to tariffs, our view is that they are likely here to stay. Recent developments suggests that the big rates announced initially may be used for negotiations, however, the markets seem to have made peace with effective tariff rates to be higher than historic numbers, but much below the initially announced numbers. Our direct exposure to the U.S. is moderate, though we continue to monitor any indirect or spillover effects that may arise.
What is your take on the overall March quarter earnings? Have there been any surprises?
March 2025 quarter earnings were a mixed bag, with some positive surprises and hopes of improvements ahead. While Nifty 500 Index aggregate earnings grew 11% YoY, but the Nifty Largecap 100 lagged with 7% YoY growth compared to Nifty Midcap 150 at 28% and Nifty SmallCap 250 at 15%. This was the 4th straight quarter of Nifty 50 earnings being in single digits YoY.
Capital Goods, defence, telecom, exchanges, wealth managers, electronic manufacturing, textiles, hospitals sectors reported higher growth numbers and surprised positively. These sectors also have good earnings visibility. On the other hand, sectors that disappointed with lower growth include oil & gas, banking, FMCG and IT.
Are you confident about strong earnings growth in the June quarter and FY26, based on management commentaries?
I’m cautiously optimistic about the June 2025 quarter—Q1FY26—and FY26 overall, and management commentaries are fanning that flame. The RBI projects FY26 real GDP growth at 6.7%. This optimism hinges on strong Rabi crop output, healthy reservoir levels, and a rebound in manufacturing and services. The GST collections in May 2025 grew at 16.4% YoY, highest since October 2022. Corporate balance sheets are stronger than ever, deleveraged and ready to ride structural tailwinds like the PLI scheme and government capex.
Management commentaries from multiple sectors signal confidence. Government capex surprised positively in the last 2 months and early signs of private capex revival are exciting. The CPI inflation is at over 5-year lows, 10-year yields are at 4-month lows, and RBI is expected to cut rates soon. RBI has proactively handled the system deficit well by transforming a nearly Rs 3 trillion deficit into Rs 1.5 trillion surplus.
However, we are also keeping an eye on global trade tensions and tariff risks, which could dent export-heavy sectors. Q1FY26 could kick off with solid momentum and FY26 looks promising. BSE 500’s next 2 years earnings growth projections stand around 10% now – we see upgrades coming in this.
Do you strongly believe that earnings upgrades will outpace downgrades starting from Q1FY26?
I’m leaning toward a ‘yes’ here. The confidence comes from the improved state of macro growth and other indicators in India. 31-month high GST growth rate clearly shows that economic activity is picking up. Moreover, Government capex in last 2 months has been at record levels. In March 2025, Government capex stood at Rs 2.4 trillion, a growth of 67% YoY, leading to aggregate capex of Rs 10.5 trillion in FY25. Hence, gross fixed capital formation showed acceleration in Q4FY25 and also led to higher GDP growth of 7.4%.
Moreover, in April 2025, capex numbers stood at Rs 1.7 trillion - a growth of 61% YoY. We believe, higher capex and increased economic activity are bound to improve reported numbers and lead to upgrades. Moreover, multi-month low inflation is margin accretive.
Looking to Q1FY26, tailwinds are aligning: tax cuts from the FY26 Budget boosting disposable income, inflation cooling to 4.2% as per RBI projections, and potential rate cuts by the RBI—possibly 50-75 basis points—could spark corporate investment and consumer spending. Management commentaries from defence, real estate, hospitals, capital market segment, capital goods and autos are upbeat, signalling earnings strength. That said, downgrades linger in IT, pharma, FMCG, banking, oil & gas.
Do you think the sharp rally from the April lows was unwarranted? Do you see the market consolidating from here, with a lower possibility of a 10–15% market return in 2025?
At the end of March 2025, the BSE 500 was about 13% below its 52-week high. However, more than half the stocks in the index were down over 29% from their respective 52-week high. This gap of 16% between index drawdown vs median drawdown is a record number.
Moreover, in the first 3 months of the calendar year 2025, BSE 500 Index was down 4.6%, however, its top decile performers of calendar year 2024 were down on an average 17.8%. This gap is also a record number. These clearly highlight that the correction was quite severe in the first 2-3 months of the calendar year 2025 – the pain being partially masked by the heavyweights in the indices.
With macro numbers improving, strong macro and corporate balance sheet, and India’s relatively better positioning in the current global scenario – all these factors coupled with the severe fall, made a compelling case for India to rise again. Interestingly, FIIs also turned buyers after 7 months of selling.
The rally from April 2025 lows was anything but unwarranted—it was a phoenix rising from the ashes. The Nifty 50 surged 5% year-to-date by May 2025, and the Nifty Smallcap 100 gained 11%, fuelled by FII inflows of Rs 16,757 crore in FY26 so far, a rebound in rural demand, and better-than-expected Q3FY25 earnings. This wasn’t blind euphoria; strong monsoons, tax relief, and policy continuity post-2024 elections lit the fuse. The market fully recovered from its early-year dip, proving its resilience.
Going forward, consolidation seems likely. Valuations are still above historical averages. Nifty 50 trades at 20x one-year forward EPS and Nifty 500 Index trades at 22x. Global trade frictions, tariff uncertainty, and a potential slowdown in corporate investment could cap gains.
Are you turning strongly overweight on consumption due to favourable tailwinds?
Consumption is on our radar, and we’re tilting overweight—though not all-in just yet. The tailwinds are impossible to ignore. The FY26 Budget’s Rs 1 lakh crore tax relief has put more money in household pockets, with zero tax on incomes up to Rs 12 lakh, as announced by Finance Minister Nirmala Sitharaman. Rural demand is roaring back—strong monsoons, healthy Rabi output, and expanded welfare programs like PM-KISAN are fuelling discretionary spending. CPI inflation eased to over 5-year low of 3.1% in April 2025, giving the RBI room to cut rates, which boosts consumer purchasing power.
Sectors like consumer discretionary, retail, Defence, Capital Markets, Hospitals, Tourism and EMS are buzzing—management commentaries highlight double-digit growth potential, and urban consumption is getting a lift from tax cuts. Tourism and hospitality are in a multi-year upcycle, driven by domestic travel, mega-events, and a wedding season boom, with limited new supply ensuring robust revenue growth. We’re also seeing a resurgence in household savings, which supports consumption-led growth.
We’re overweight on consumption, with a focus on discretionary spending patterns as opposed to FMCG.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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