Sonal Minhas, the Founder of Prescient Capital believes that the markets are set for a rebound in H2 FY26, supported by a revival in corporate earnings.
According to him, the growth in earnings had bottomed out in Q1 FY26, and sectors that were laggards in the last quarter such as banking and consumption have likely found their base and are expected to show better results in the coming year, aided by macro stimulus from the Government and RBI.
He believes auto & auto ancillary, and chemicals are also expected to see better results going ahead. "The auto sector should benefit from GST rate cuts and rising premiumisation trends, while the chemicals industry appears poised for a cyclical turnaround after 4–5 years of price pressure from Chinese dumping" he said.
Do you believe the market is poised for a strong run in the year ahead, given the strength in domestic sectors and the rising hopes of an India–US trade deal in the near future?
We believe that the markets are set for a rebound in H2 FY26, supported by a revival in corporate earnings. The growth in earnings had bottomed out in Q1 FY26, and sectors that were laggards in the last quarter such as Banking and Consumption have likely found their base and are expected to show better results in the coming year, aided by macro stimulus from the Government and RBI.
The limited negative impact of the India–US trade deal has already been understood and factored in by the markets. In the worst case, the deal could impact GDP growth by up to 0.75 percent.
As of now, trade talks between India and the US are progressing positively. Any favourable development on this front will further boost sentiment and act as a fillip to Indian markets.
If yes, which sectors do you think could lead the market rally?
Sectors expected to lead the rebound include:
Banking
In Q1 FY26, the top five banks demonstrated weak earnings growth due to the 50-basis-point repo rate cut, most of which has already been passed on. The health of banks and credit offtake remain strong (up 10 percent YoY till August 2025). Lower rates, once fully transmitted, should stimulate corporate, MSME, and personal loan demand.
Consumption
Consumption demand was weak in Q1 FY26 due to lower urban spending, reduced personal credit, and logistical disruptions from Operation Sindoor. However, rural demand remained resilient.
The GST reforms introduced by the Government in September 2025 are expected to release Rs 2–2.5 lakh crore back into the economy through savings and increased spending. This could translate to approximately Rs 2,000 per capita in FY26 and Rs 4,000 per capita in FY27 for the bottom 50 crore citizens — a meaningful stimulus that should drive consumption.
Auto & Auto Ancillary
The auto sector should benefit from GST rate cuts and rising premiumisation trends — such as higher SUV and premium bike sales. Auto ancillaries are also expected to outperform the underlying auto industry due to increased content per vehicle (CPV).
Further, many players are pursuing import substitution in the EV component space (motors, controllers, chargers, displays, etc.), opening new growth avenues for well-managed listed companies.
Chemicals
The chemicals industry, especially agrochemical intermediates, dyes, pigments, and performance chemicals, appears poised for a cyclical turnaround after 4–5 years of price pressure from Chinese dumping. With demand recovering and prices bottoming out, this sector offers attractive valuations and strong earnings potential ahead.
Do you see strong investment opportunities emerging in the microfinance sector?
Yes. The microfinance (MFI) sector is expected to perform well over the next two years. The industry is recovering from a cyclical downturn caused by lenient post-COVID lending norms, which led to over-leveraged borrowers taking high-interest loans from multiple lenders.
In September 2024, the RBI and MFIN tightened lending norms, capping the total amount and number of loans per customer. This initially hurt asset quality, causing microfinance stocks to correct by 33–50 percent from their peaks.
However, top-tier lenders have since strengthened credit assessment and reduced exposure risks. As of Q2 FY26, growth has resumed, and MFI companies are expected to deliver strong loan book expansion in H2 FY26.
Is the market beginning to recognize that the earnings cycle is nearing its trough and is set for double-digit growth next year?
The BSE Sensex currently trades at a TTM PE of 23x, above its long-term average of 21.8x, indicating that the market is already pricing in moderate earnings growth. Assuming a PEG ratio of 1.5x, this suggests that investors are factoring in roughly 15 percent future earnings growth — any growth above this is not yet priced in.
From a ground-level perspective, mid to early double-digit earnings growth is expected from Q3 FY26 onward. Multiple catalysts including policy rate cuts, GST reductions, and higher income-tax savings — are set to fuel consumption-led recovery.
Additionally, the real estate and gold cycles have added significantly to household wealth. Gold holdings per capita have risen 2.7x, from Rs 82,000 in 2022 to Rs 2,24,000 in 2025. This rise in net worth supports consumer confidence and spending capacity over the next 2–3 years.
On the corporate side, chemicals, power equipment, engineering, and auto ancillaries are among sectors with a strong double-digit earnings outlook.
Could the IT sector serve as a contra bet at this stage?
It may be too early to invest in the IT sector as a broad theme. The sector continues to experience a rationalisation of software spending by global clients, leading to slower project execution and elongated sales cycles.
We expect this earnings deceleration to persist for another 12–18 months, and current valuations still rich need to correct by 15–20 percent to align with subdued growth prospects.
However, from a 3–5 year perspective, we remain constructive on Indian IT. The ongoing AI investment cycle will benefit companies that are strong in specific verticals and are actively investing in AI capabilities. These firms should see robust order inflows as enterprises in the US and Europe adopt AI solutions.
Early signs of productivity improvement are already visible, with IT firms showing higher sales per employee on a YoY basis:
As a portfolio manager, are there any global factors that could potentially dampen market sentiment?
India has been the worst-performing major market over the past year, with Gift Nifty up only 7 percent YoY, compared to Nasdaq (+31 percent), Shanghai Composite (+21 percent), and German DAX (+20 percent).
The global equity rally has largely been driven by the AI investment cycle in the US/China and the defence capex boom in Europe. India, not being a key contributor to the AI supply chain, has consequently seen lower FII inflows.
That said, the AI capex surge bears resemblance to the dot-com bubble of the early 2000s with spending and valuations far exceeding utility. This could lead to a time or price correction in US equities, potentially triggering a 15–20 percent correction in Indian markets as well.
Timing such corrections is difficult, so we continue to deploy capital cautiously and gradually in Indian equities.
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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