Daily Voice: Centrum's Jignesh Desai expects earnings upgrade cycle to start from Q1FY26, suggests great bets for portfolio

Yes, given the ongoing geopolitical and trade-related uncertainties, especially those stemming from US tariff actions, it would be prudent to focus on domestically oriented businesses. India’s consumption story is likely to improve from here, supported by tax cuts, lower food inflation and rate cuts by the RBI. Making domestic sectors more attractive amidst global trade tensions.

If yes, does this mean one should stay away from the technology sector?

No, the technology sector should not necessarily be avoided. While the focus on domestic-oriented businesses is advisable, technology, especially IT and services, remains resilient and is a significant contributor to India's exports. The sector is seeing green shoots in verticals such as BFSI, and also, Artificial Intelligence-based solutions are expected to drive the next wave of growth for Indian IT companies. Also, valuations have become reasonable for Indian IT services, well below the last 5-year average. Hence, the technology sector remains attractive, especially for service-oriented businesses, despite global trade tensions. One can add exposure to select stocks in tier 1 and tier 2, such as Infosys, LTIMindtree, Coforge, etc.

Which domestically driven sectors should be added to a portfolio, and why?

FMCG, cement, consumer durables, and auto and auto ancillary could be great bets going forward, as the tax cuts, coupled with cooling inflation, would create room for increased discretionary spending as a result of increased disposable income in the hands of the middle class.

Infrastructure (roads, renewable power, ports, urban development): Consistent government investment driving growth, employment, and improved logistics.

BFSI: As the sector runs on a domestically driven model, there is no risk coming from the global uncertainties. Adding the attractive valuations into the equation, the sector will perform well in the coming years.

Do you believe the worst of the earnings slowdown is over, and do you expect better earnings growth in the coming years?

Yes, we remain optimistic regarding corporate earnings growth and expect the earning upgrades cycle to start as early as the 1st quarter of FY26. Also, after the recent correction we witnessed in the broader markets, stocks are available at reasonable valuations, mainly in the small and midcap space. I am hopeful for better earnings mainly because most of the corporates have raised funds for growth and expect to get reflected in the earnings in coming years.

Do you expect the recent tax cuts in the Union Budget, effective in FY26, to be highly supportive of businesses and their earnings?

Yes, the recent tax cuts announced in the Union Budget for FY26 are expected to provide a fillip to businesses and earnings. The tax rebate limit increase and the revised tax slabs under the new tax regime will boost disposable incomes, supporting consumer spending and businesses, particularly in mid-income goods segments. This support is expected to sustain consumption-driven growth and positively influence corporate earnings beyond FY26.

Are you convinced that the market has bottomed out now? If yes, do you expect new record highs in the second half of 2025?

Yes, the market has likely bottomed out, or we are close to the bottom, as the fear surrounding Trump’s tariffs has softened a little. A new record would be a bit farfetched for now, but factors like expectations of increased consumer demand, further rate cuts by RBI, cooling inflation, and better corporate earnings going forward will provide the much-needed push for the market to recover from the current levels. We expect the earnings will catch up with the valuations in FY26 and see markets stabilising from here.

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