Daily Voice: Delay beyond March 2026 in India-US trade deal could dampen markets, says Bharti AXA Life CIO

Rahul Bhuskute is the Chief Investment Officer at Bharti AXA Life Insurance

• Prefer PSUs in sectors with strong tailwinds, such as defence, PSU banks, power utilities, metals
• Small and mid-cap companies appear to have outpaced large-caps in earnings growth in Q3
• Dividend yields of large cap IT companies may be an attraction now

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Rahul Bhuskute, Chief Investment Officer at Bharti AXA Life Insurance, believes that the market has largely priced in the current information regarding the US trade deal.

According to him, investors are now focused on the formal signing of the agreement. While a finalized deal could provide a fresh catalyst for the markets, any delay beyond the March 2026 timeline is likely to act as a dampener.

At the current juncture, he prefers PSUs in sectors with strong tailwinds, such as defence, PSU banks, power utilities, and metals. For investors seeking value, the dividend yields offered by large-cap IT companies may also be attractive, he believes.

Do you think small- and mid-cap companies have reported stronger earnings than large caps in Q3?

On an aggregate basis, small and mid-cap companies appear to have outpaced large-caps in earnings growth in Q3. However, this performance gap is largely a function of sector composition: sectors with high EPS growth in Q3 like capital goods, construction materials, and metals & mining have a higher concentration in the mid/small cap space.

Conversely, large-cap indices are more heavily weighted toward private banks and IT, which have recently seen below-average growth. Normalizing for sectors, the earnings growth seems to be similar across market caps.

Do you believe Q4 numbers will be significantly better than Q3 earnings after reading the management commentaries?

In general, corporate management sentiment turned more constructive in Q3 compared to previous periods. This optimism is anchored in a convergence of supportive factors: the implementation of GST reforms, the successful conclusion of landmark trade deals with the EU, and benign interest rate environment.

Furthermore, a robust Rs 12.2 lakh crore capex outlay in the Union Budget and improving credit growth have bolstered long-term confidence. Strategic international shifts—most notably China’s phased withdrawal of export rebates on certain products—are also creating a competitive opening for Indian businesses.

While these structural tailwinds are unlikely to translate into a significant earnings spike in Q4, they provide a strong foundation for FY27. For now, street expectations for Nifty 50 FY26 growth remain anchored at 8-9%, implying a measured Q4 EPS growth of 5-6% surpassing which should not be a tall task.

Is it better to hold mid-cap IT stocks in the portfolio rather than large-cap stocks, considering the expected growth potential and concerns about AI-led disruption?

For investors looking for growth, mid-cap IT companies have generally been more attractive versus the large-cap companies not only because of smaller base but also because of their ability to specialize in certain domains, be more agile by having shorter decision-making loops and run leaner operations.

Also, some of these players have already transitioned from a traditional service-based model to a platform-led approach, resulting in a more robust and consistent growth trajectory over recent quarters.

Furthermore, their deal-win momentum for these players remains highly encouraging, signaling a strong double-digit growth for FY27 versus high single-digit growth projected for their large-cap counterparts.

However, for investors looking for value, the dividend yields of large cap IT companies may be an attraction.

Do you rule out the possibility of a stellar rally in gold and silver from here?

The recent rally in gold and silver stems from a convergence of structural drivers: aggressive central bank accumulation, geopolitical hedging, and low US real rates. Furthermore, a growing de-dollarization narrative—fueled by high US fiscal deficits and the perceived "politicization" of the Federal Reserve—has bolstered demand.

While the duration of such top-down trades is difficult to predict, these persistent tailwinds are likely to sustain elevated volatility. Given their historical role as a proven inflation hedge, we recommend maintaining a strategic allocation to precious metals (especially Gold) within a diversified portfolio.

Do you think it is better to take a bullish view on PSU stocks, considering the dividends along with the expected capital appreciation?

Investing in PSUs requires a selective approach due to government-related policy risks and disinvestment related stock overhangs. However, we also believe that certain strong well-run PSUs are conduits to deliver key government reforms and therefore good wealth generators in certain periods.

At current juncture, we like PSUs within sectors with strong tailwinds like defence, PSU banks, power utilities and metals.

Do you think the market has already priced in all the positives related to the trade deal and is likely to consolidate until the March quarter earnings are released?

Predicting near-term market direction remains difficult due to numerous shifting variables. However, we believe the market has largely priced in current information regarding the US trade deal. Investors are now focused on the formal signing; while a finalized agreement could provide a fresh catalyst, any delay beyond the March 2026 timeline would likely act as a market dampener.