Following Q4FY25 earnings and management commentary, Divam Sharma, Co-Founder and Fund Manager at Green Portfolio PMS, believes the pace of earnings downgrades will ease significantly in Q1FY26.
Sharma remains optimistic about the market’s trajectory, expecting double-digit returns from the benchmark index. However, he flagged geopolitical uncertainties as potential speed bumps that could delay the market’s uptrend.
On the macro front, he anticipates more rate cuts by the RBI. “Inflation is under control, but non-discretionary consumption, particularly in urban areas, has slowed. A normal monsoon would support the agriculture sector and further ease inflation,” Sharma told Moneycontrol in an interview.
What is your outlook on the consumer discretionary sector, especially in light of the Q4 earnings?
A report released in February 2025 revealed that 90 percent of India’s 1.4 billion population cannot afford to spend on discretionary goods. Although the per capita income remains sub-par, the consuming class is not widening but deepening, and this has given some respite to consumer discretionary companies after abysmal results in the last few quarters. A hot summer is expected to increase sales of ACs. fridges and coolers.
For instance, PG Electroplast’s AC segment grew by 128% YoY, washing machines by 43 percent and coolers by 80 percent. We are seeing urban demand falling short and rural areas pacing the future outlook. Although job cuts remain a global worry, a cut in interest rates is giving a breather. Near-term outlook, especially considering the heat in Northern India, remains positive. On a fund level, we expect Virtuoso Optoelectronics Ltd to report positive growth.
Do you expect the pace of earnings downgrades to decline substantially in Q1FY26, with a corresponding increase in the number of earnings upgrades?
The companies in our portfolio have reported moderate earnings growth this quarter, but we expected numbers to improve substantially in the coming quarter. Prime example being the Chemical Sector. Companies like Epigral and Meghmani Organics have reported spectacular results this quarter, and we see this trend continue.
In the defence sector too, the Government has introduced “Emergency Defense Procurement” where armed forces can place orders worth Rs 300 crore without going through a long hierarchical process. Coming to the telecommunications sector, we’re witnessing higher capacity utilisation, hence, a better quarter too. So, we do expect the pace of earnings downgrades to decline substantially in Q1FY26.
Do you believe that a return of FII flows to India is largely contingent upon the resolution of uncertainty surrounding the U.S. Federal Reserve's rate policy?
Although Trump has been trying his ways out to make the Fed cut interest rates, Powell has maintained a status quo, or “Wait and watch” policy as mentioned by him in the latest meeting. Let’s have a look at some stats. The US Inflation rate has dropped to 2.3% last month, still higher than the US's range. And most importantly, the US is yet to face the brunt of tariffs. As the world is becoming more and more de-globalised and mega manufacturers are moving out of China, India holds a massive opportunity as a trading partner.
We, as a fund, are heavily tilted towards manufacturing and would continue to do so. Yes, the flows are contingent on any rate cuts but it also depends on how the Trump administration pushes/directs these FIIs and pushes for trade agreements. FIIs will ultimately align to geopolitical alignments, irrespective of country.
Given that tariff-related risks are now largely priced in, do you anticipate that both the benchmark indices and the broader markets will end the calendar year with healthy double-digit returns?
We are positive that the index will give double-digit returns. However, there are risks around the uncertainties of geopolitics, which could delay gratification. As mentioned before, although the broader market might take some time, we are optimistic that our stocks will do well. Whenever the rally comes, we are here to ride it.
Do you expect the RBI to implement back-to-back rate cuts in upcoming policy meetings, followed by a prolonged pause to assess their impact?
Yes, we do see more rate cuts happening. Inflation is under control, and investors are still fearing Moody's Trump’s stance on the tariffs. The economy needs support. Inflation is in control, but non-discretionary consumption, especially in urban areas, has taken a back foot. A normal monsoon would give relief to the agri industry and hence lower expected inflation too.
Do you foresee the RBI revising its economic growth and inflation forecasts for FY26 in the June policy meeting?
There should not be major changes, although some realignments. Trump has paused 26% tariffs on India for 90 days. If he uplifts them, we’ll be back to square one, with major industries getting impacted, although only in the short term. Any such event will trigger re-evaluation by the central bank. We are living in a more evolving world and the revisions should be more frequent over the coming quarters.
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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