Daily Voice: Kush Gupta backs financials, agri and consumption for Q3; sees IT struggling

India’s auto sector enters H2 FY26 on a strong footing, supported by robust Q2 performance and an early festive push. September 2025 delivered record sales across passenger vehicles (PV), two wheelers and three wheelers, even though GST 2.0 benefits were available for only nine days. Strong exports, firm rural mobility demand and steady consumer sentiment boosted by GST cuts, earlier RBI rate relief and income tax benefits underpinned the sector’s momentum.

But going forward the OEMs remain cautious, despite the festive surge, PV sales in Q2 fell –1.5 percent and UVs (utility vehicles) dipped 2.1 percent as compared to Q2 the previous year, indicating underlying softness. December- January period could be critical in keeping the momentum.

With some automakers flagging early signs of retail fatigue, the key test will come in Q4 results, once the extended festive and wedding season ends. Sustained demand will depend on inventory normalization, liquidity and how effectively GST 2.0 supports affordability beyond the festival period.

How would you summarise the September quarter earnings season that concluded on November 14?

India’s corporate earnings for Q2FY26 are shaping up stronger than anticipated, with early results indicating a broad but sector skewed recovery led by commodities, capital goods and technology. Oil profits surged nearly nine-fold, alongside solid gains in technology, cement and metals. Strong performances in cement, IT, PSU banks, real estate and metals.

The key monitorable remains the sustainability of this momentum amid normalising input costs and demand after the festive boost. Nifty 500 companies have reported a 9 percent YoY growth in sales and profits, we are expecting the growth to continue through H1 of 2026.

Capex heavy industries have also shown strong results with the likes of CG Power and Hitachi Energy leading the way. Order inflows have shown heavy momentum here. The overall outlook is cautiously improving; however, it depends heavily on the durability of the recovery and margin expansion, with the global economic environment likely to play a major role over the next 3–4 quarters.

After reviewing the earnings data and management commentaries, are you optimistic about Q3 results?

Yes, the outlook for Q3 remains optimistic. Earnings momentum is steady, management commentaries indicate firm demand and acceleration towards going into FY27. While IT sector is doing poorly, financials, agriculture and consumption are expected to shine. Rural demand is rising and outpacing urban areas in sectors like FMCG with a 7.7 percent YoY growth.

I am bullish on domestic consumption on all fronts, disposable income is increasing, we are seeing low interest rates and easing inflation. This is an ideal scenario for a boost in consumer behaviour across auto, travel, hospitality and discretionary spending.

On the agriculture front, GST cuts, good monsoon season and government subsidies will continue to fuel better earnings. Aided with stable MSPs and lower input costs, agriculture income has also shown improvement.

With robust manufacturing data and stable macros, Q3 is likely to be a healthy quarter, though stock specific divergence may persist due to valuations.

With inflation continuing to trend lower, do you think there is scope for the RBI to cut rates in its December and February policy meetings?

With inflation steadily trending lower and core inflation remaining contained, the macro backdrop does create theoretical room for the RBI to consider rate cuts in the December or February meetings. India’s consumer inflation came to 0.25 percent In October, which was more than expected, strengthening the case further.

However, the governor Mr. Sanjay Malhotra said that the effects of the 50-basis point rate cut in June have yet to filter through the economy. Given that, the central bank is likely to remain cautious and not show any hurry to cut rates. Global uncertainties, commodity price risks and the need to see more sustained evidence of disinflation will be key factors before pivoting.

As a result, while February has a higher probability than December, any policy easing will still be data dependent, calibrated and aimed at ensuring inflation remains firmly aligned with the 4 percent target.

Are you turning increasingly bullish on the financial services segment?

Yes, I have been bullish on the financial services segment for some time now and I think there is optimism in the near future. The past 10 years we have been very exciting in this segment. What used to be a banking, insurance and lending driven sector has now branched out to wealth management, digital payments, asset management, merchant banking, investment banking, SME, IPO and much more. This has altered the very DNA and made the financial sector a sum total of smaller mini-sectors that are all feeding each other and growth together.

Today the BFSI sector accounts for 27 percent of the total GDP, this was only 6 percent in 2005. There has been massive penetration and financial inclusion and inspite of that we only have 130 million unique demat accounts, that is less than 10 percent of the total population. In US the retail participation is as high as 60 percent.

With digitisation of payments, e-commerce and ease of investing, there has been a change in culture in how we utilise the financial infrastructure in this country. And cultural changes are difficult to reverse and almost impossible to ignore. In a country of 1.4 billion people, almost 50 percent are using financial infrastructure largely thanks to UPI. I think this massive change is here to stay and as we get more dependent on this unique mix of finance & technology, we will see the financial services segment grow further.

Have you started focusing on the AI theme for investments, even though India still lags behind other countries in this space?

We have stayed away from the AI theme as of now. I think AI is changing the world in a way that you only witness once in a generation. Think of the industrial revolution or how social media impacted the way we live now. If at all, I think AI’s effect will only be bigger and more impactful. There is also no doubt that AI will be adopted in our daily lives in the near future.

But from an investment point of view, like you said, India still lags behind and I have yet to come across good companies that are fairly valued. There is also a lot of mis-representation, I come across a lot companies that claim to driven by AI or being in its food chain in some form but when you dig in, a lot of them are not actually creating significant value.

So it’s difficult to say what their future will be, and we don’t want to ride a trend without being certain. One space in AI that does interest me is the growth of digital infrastructure companies that are providing the hardware, storage facilities, data centres etc to enable its growth. I think in future, that is the theme I would like to look into. They will be very critical in this tech revolution and Indian companies can look at this segment to create become an integral part of the value chain.

Which sectors are currently on your radar for investment?

As a long term investor, I think India is at a precipice of a major economic expansion with various sectors contributing their fair share in its growth. Some of the themes that I think will stand out are BFSI, Healthcare, and Infra.

We have seen a Fintech revolution in India with UPI being adopted in most of the country, and it is a large country mind you. We are seeing huge participation from domestic and global investors in our primary markets. Financial penetration is at its all-time high, regulatory support is unwavering and the way economy is intertwined, growth in sectors like consumer goods, health and telecom also ends up supporting the financial sector.

Healthcare, that includes pharma, diagnostics, hospitals etc has being showing good results with most sector dedicated funds giving a return of 22-24 percent in last three years. I think the trend will continue with a big contribution from Tier 2 & tier 3 cities. Expansion of quality hospitals, speciality clinics and diagnostic centres in smaller cities have driven this growth and there is a lot of head room there.

Further, insurance penetration has made it more affordable for low-income households to seek good healthcare, thereby increasing the demand.

Infra is another sector that I follow very closely and I think has given good returns and will continue to shine. This has been largely thanks for Modi government’s push to sponsor large projects such as airports, highways, high-speed rails, freight corridors etc. Infra growth will continue to be a very critical element in the overall growth of other sectors hence I feel that government policies and focus will be continue to be very favourable here. Companies that are engaged in large-infra and ancillary companies that support them are on our radar.

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