Daily Voice: Market momentum is building quietly; here’s what will make it visible according to this Emkay strategist

Seshadri Sen is the Head of Research and Strategist at Emkay Global Financial Services

According to Seshadri Sen, Head of Research and Strategist at Emkay Global Financial Services, the gradual market momentum largely reflects the cumulative impact of policy measures and structural reforms.

Increased welfare spending, easier liquidity conditions, and the GST rate rationalisation should become more visible in H2FY26. These measures are expected to support consumption and loan growth, driving a more sustained market recovery over the coming quarters, he said in an interview with Moneycontrol.

He also believes that the next interest rate cut by the RBI is relatively inconsequential. "The RBI has done enough to spur a cyclical recovery, and an additional cut will not move the needle by much," he added.

Yes, the gradual market momentum largely reflects the cumulative impact of policy measures and structural reforms. While the initial market response to the GST reform and monetary easing has been muted—likely because some benefits were already priced in—the cascading effect of increased welfare spending, easier liquidity conditions, and the GST rate rationalization should become more visible in H2FY26. These measures are expected to support consumption, and loan growth, driving a more sustained market recovery over the coming quarters.

We remain constructive on discretionary consumption (not staples) and select healthcare/industrial sectors. We are underweight on telecom because of discomfort with valuations. Other underweight sectors are financials, staples, energy, materials, and technology, given regulatory pressure, tepid growth, or weaker cyclical triggers in these areas.

Yes, autos remain the key beneficiaries of GST reform, with rate cuts and procedural simplification likely boosting demand and margins. The high optical valuations don’t matter: the cyclical recovery in consumption, supportive government measures, and lower input costs support a strong overweight stance on automobile and ancillary stocks.

Banks may report a modest quarter, reflecting slow loan growth in Q2FY26, especially in wholesale lending. The margin pressures because of front-ending of transmission on the asset size is expected to continue. Retail credit is relatively resilient, but disintermediation toward debt markets has kept growth muted.

Asset quality stress appears manageable, and with the lagged effect of RBI easing, better consumer demand, and improving deposit growth, we see a loan growth pickup in H2FY26.

Given weak macro indicators—cargo, fuel demand, loan growth, and power demand—Q2FY26 may see limited upside surprises. The problem will be exacerbated by the expected slump in sales in the weeks leading up to the September 22 GST implementation. Most of this weakness will reverse in H2FY26 with autos, discretionary consumption, and industrials leading the way.

The market currently appears cautious on the likelihood of a rate cut in Q4FY26. The next rate cut is relatively inconsequential: the RBI has done enough to spur a cyclical recovery and an additional cut will not move the needle by much. Combined with expected growth in credit off-take and improving M3/deposit trends, RBI’s rate cuts could accelerate the credit cycle and support better asset quality and profitability in H2FY26.