Daily Voice: Capitalmind PMS fund manager cuts Nifty EPS growth estimate to 9-10% for FY26; festive demand key to upward revision

Krishna Appala is the Fund Manager at Capitalmind PMS

After Q1, there’s been a mild rethink for the full-year Nifty EPS growth estimates. "We are now building in Nifty EPS growth closer to 9–10% for FY26, down from the earlier 10–12% view," Krishna Appala, the Fund Manager at Capitalmind PMS, said in an interview to Moneycontrol.

According to him, if the second half sees a strong pickup in margins or festive demand, there is room to catch up. But for now, the expectations have become a bit more conservative, he said.

On the negative FII flows, he is of the view that until there’s more clarity on trade and earnings improve meaningfully, FII flows may stay uneven.

Have full-year (FY26) GDP growth estimates been revised downward from the RBI’s 6.5% forecast?

Given recent global developments, especially the trade front, FY26 GDP growth estimates are now being marked down slightly toward the 6.0–6.3% range. The recent US tariffs on Indian exports could drag growth slightly.

Domestically, the picture is mixed. The monsoon has been good, which should help agriculture and rural demand. But on the other hand, factory output has slowed, with IIP growth hitting a 9-month low at just 1.2% YoY. Consumer durables have also seen a dip, and urban demand is still recovering. So, while rural demand looks stable, the overall pace of growth may be a little softer than what we had earlier hoped.

Do you expect FII flows to remain negative, given the volatility in US policy and recent earnings?

FII flows have been weak lately. Around Rs 47,000 crore exited in July, and another Rs 11,000 crore so far this month. Uncertainty around US trade policy and a strong dollar have kept global investors cautious.

At the same time, Q1 earnings didn’t offer too many surprises on the upside. For the NSE 500, revenue and earnings growth are tracking at around 9.6% and 11.4%, which is ok but not exciting. Sectors like IT are facing growth headwinds, and NBFCs have become more cautious. Until there’s more clarity on trade and earnings improve meaningfully, FII flows may stay uneven.

Will Nifty earnings growth for FY26 be revised lower from 10–12% to 9–10%?

After Q1, there’s been a mild rethink. Several large sectors, including IT & financials, saw weaker numbers than expected. Even consumption-oriented companies have had a slow start. Because of this, we are now building in Nifty EPS growth closer to 9–10% for FY26, down from the earlier 10–12% view. If the second half sees a strong pickup in margins or festive demand, there is room to catch up. But for now, the expectations have become a bit more conservative.

Is the US Dollar Index unlikely to rise much more until the Fed ends its rate cuts?

That is broadly how markets seem to be looking at it. As long as the Fed continues cutting rates, the dollar may stay under some pressure. There could still be short bursts of strength if global risk sentiment turns, but a big, sustained rally looks unlikely for now. For India, this kind of dollar trend actually helps. It eases pressure on the rupee and makes capital flows a bit more stable.

Which sectors are in focus for the rest of FY26?

The focus remains on domestic-facing sectors, where visibility is better and demand is steadier. A few areas that stand out:

Capital Goods & Infrastructure: Government-led capex continues to be the key growth driver. We're seeing healthy order inflows across construction, power utilities, and capital equipment manufacturers.

Defence: Rising demand for indigenization and exports is fueling growth. Several companies are scaling up capacities to meet this structural opportunity.

Hospitals: A stable, defensive sector that tends to hold up well during market volatility. An ageing population and rising healthcare demand make it a good long-term theme.

Manufacturing / PLI-led Themes: Segments like electronics, specialty chemicals, and defence-linked manufacturing are gaining from policy support and global supply chain diversification.

On the other hand, export-heavy sectors like IT and parts of pharma are still working through near-term challenges. Valuations look more reasonable now, but recovery may take a bit longer.

What are your expectations from the RBI’s September policy meeting?

The RBI still has room to stay supportive. Inflation has come down sharply. It’s now at a 6-year low of around 2.1%, and the central bank has already lowered its CPI forecast to 3.1%. In August, they chose to pause after cutting rates earlier this year. But if growth continues to soften and global conditions stay weak, another 25 bps rate cut in September or shortly after wouldn’t be surprising.

Even if they decide to wait a bit longer, the overall tone is likely to stay dovish. The central bank seems focused on supporting growth without stoking inflation, and right now, it has the space to do that.

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