Daily Voice: Markets may consolidate until clarity on US tariff policies, Q2FY26 earnings to remain subdued, says Dikshit Mittal of LIC MF

Dikshit Mittal is the Senior Fund Manager - Equity at LIC Mutual Fund Asset Management

In the near term, markets may continue to consolidate until there is greater clarity on US tariff, according to Dikshit Mittal, Senior Fund Manager - Equity at LIC Mutual Fund Asset Management.

Once that clarity emerges and earnings growth begins to accelerate, he expects the market to resume its upward trajectory.

He anticipates a meaningful pickup in earnings momentum starting from Q3FY26, driven by themes such as consumption, BFSI, manufacturing, and capex. However, earnings for Q2FY26 are expected to remain subdued, impacted by a combination of transitory headwinds, Mittal said.

Do you think RBI will refrain from further monetary easing, despite there being room for it, especially after the Federal Reserve signalled two more rate cuts this year?

Since FY21, the Reserve Bank of India (RBI) has made its monetary policy framework more transparent, with a clear emphasis on inflation targeting as its primary objective. The central bank remains committed to maintaining price stability within its defined target range of 2–6%, with a particular focus on anchoring inflation near the midpoint.

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Dikshit Mittal

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In the current context, inflation may sustainably trend below the lower bound of the target range (i.e., below 4%), we anticipate the RBI will pivot toward supporting growth most likely through calibrated interest rate reductions, timing of which remains uncertain as of now. Such a move would be aimed at stimulating demand without compromising its inflation mandate.

While global monetary dynamics especially actions by central banks in developed and emerging markets do shape the broader macro environment, the RBI’s policy decisions appear largely domestically driven.

Do you think the market will surpass its previous record high by October, given the more favourable factors outweighing the unfavourable ones?

The market has been in a consolidation phase for over a year, seemingly waiting for a decisive trigger to break out.

Looking ahead, the focus must shift to earnings growth, as further expansion in PE multiples is unlikely unless there is a sharp decline in interest rates. We anticipate a meaningful pickup in earnings momentum starting from Q3FY26, driven by themes such as consumption, BFSI, manufacturing, and capex.

In the near term, markets may continue to consolidate until there is greater clarity on US tariff policies. Once that clarity emerges and earnings growth begins to accelerate, we expect the market to resume its upward trajectory.

Which sectors can be leveraged to play the consumption theme?

Consumption remains a foundational theme in India's growth story, and within that, discretionary consumption stands out as a particularly promising segment with a long runway for growth. As rising incomes, urbanization, and aspirational lifestyles continue to reshape consumer behavior, we expect robust demand across a wide array of categories.

We are especially constructive on several sub-segments within discretionary consumption:

Packaged Foods: Driven by increasing health awareness, convenience, and brand consciousness, this category is witnessing strong volume growth and premiumization trends.

Consumer Durables: Penetration levels remain low in many product categories, offering significant headroom for growth, especially in Tier 2 and Tier 3 cities.

Automobiles: With cyclical recovery, rising rural demand, and a shift toward premium and electric vehicles, the auto sector is poised for multi-year growth.

Retail: Organized retail continues to gain share, supported by digital integration, omni-channel strategies, and evolving consumer preferences.

Footwear: A blend of fashion, functionality, and affordability is driving growth, with branded players expanding aggressively.

Alcoholic Beverages (Alcobev): Premiumization and evolving social norms are supporting volume and value growth.

Apparel: Fashion-forward consumers and rising disposable incomes are fueling demand for branded and fast-fashion offerings.

Do you expect the momentum to continue in the auto sector, considering the Nifty Auto index is approaching its record high?

The Indian auto industry has faced a prolonged period of subdued growth since the onset of COVID-19, weighed down by multiple structural and cyclical challenges. These include sluggish growth in disposable incomes, rising input and compliance costs due to regulatory changes, and intensifying competition from electric vehicles (EVs). However, recent policy measures, tax rate cuts, and particularly the GST rate cut have begun to address affordability concerns, potentially unlocking demand in key segments. This rationalization not only improves price accessibility but also supports premiumization, as consumers may now be more inclined to upgrade to higher-end models.

Following the recent market rally, much of this optimism appears to be priced in. From here, a bottom-up, company-specific approach becomes critical. Automakers with strong product pipelines, differentiated offerings, and the ability to capture incremental market share especially through new launches appears to be well positioned to outperform.

What are your expectations for September quarter earnings? Do you think the downgrade cycle will end with this quarter’s results?

Earnings for the September quarter (Q2FY26) are expected to remain subdued, impacted by a combination of transitory headwinds. Excess rainfall has disrupted operations and demand in several sectors, while anticipated GST rate cuts have led to deferment in purchases, particularly in discretionary categories. Additionally, banks are likely to face margin compression due to the sharp reduction in policy rates by the RBI.

Despite these near-term challenges, the market will largely look through the softness in Q2 earnings and focus instead on the anticipated recovery in the second half of FY26. Early indicators suggest that the earnings downgrade cycle may be nearing its end, with revisions stabilizing across key sectors.

That said, a more definitive view will depend on the actual results and critically management commentaries. These will offer valuable insights into demand trends, margin outlook, and strategic responses to evolving macro conditions. From here, a selective and bottom-up approach may be essential to identify companies positioned well for the recovery.

Do you foresee a continued flood of IPOs in the near future?

The momentum in India’s primary market is expected to remain strong, underpinned by robust inflows into domestic mutual funds and heightened investor interest in emerging growth themes. Investors are increasingly seeking exposure to sectors and business models that offer scalability, innovation, and long-term potential.

A significant portion of upcoming IPOs is concentrated in high-growth industries such as financial services, renewables, manufacturing, healthcare, and consumer tech.

With investors actively backing these future-facing sectors, the primary market is likely to remain vibrant. Selectivity and valuation discipline will be key, but the appetite for fresh ideas and scalable platforms suggests a healthy pipeline ahead.

Do you expect the US Dollar Index to correct further in the coming weeks?

Forecasting currency movements is inherently challenging, given the multitude of interdependent variables at play. Exchange rates are influenced by central bank monetary policies, macroeconomic indicators such as inflation and GDP growth, shifts in market sentiment, perceived risk levels, and the relative strength of other global currencies.

At this juncture, with numerous moving parts and evolving dynamics, making a definitive call on currency direction is difficult. As investors, it’s essential to remain agile monitoring developments closely and responding with discipline and flexibility. A proactive, data-driven approach to currency exposure and hedging strategies may be key to managing volatility and protecting portfolio value.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.