Daily Voice: Narnolia's CIO anticipates 9% Nifty earnings growth in Q2FY26, expects RBI to hold rates

Since the lows in April, the consumer discretionary sector has performed exceptionally well. While the Nifty has increased by 12%, the BSE Consumer Discretionary Index has seen a strong 23% gain.

Beyond the promising long-term opportunities in tourism and hospitality, other sub-segments like automobiles and housing ancillaries also appear highly attractive. As domestic consumption is the main driver of India's GDP growth, we anticipate that the profits of consumer discretionary companies will grow steadily as India continues its strong economic pace.

Additionally, we believe many Indian companies in this sector are poised to become global leaders in their respective sub-sectors, presenting consistent compounding opportunities for investors.

Are you bullish on new-age tech companies? Also, what’s your take on Urban Company, which closed its IPO on September 12?

New-age tech companies operate across various sectors, with their long-term appeal stemming from their dominant market positions, often as monopolies or duopolies. These firms are well-positioned for growth, thanks to India's robust macroeconomic environment, including strong GDP growth, increasing domestic consumption, and a large, tech-savvy youth demographic.

While their high-growth phase can lead to inflated valuations and stock volatility, strategic entry points can turn select companies into significant wealth creators over the long term. Urban Company holds a pan-India monopoly in the home services industry, a market with substantial potential.

Are capital market stocks trading at premium valuations? If so, does that mean they should be completely avoided?

Capital market stocks present a mixed valuation landscape; while some trade at a premium, others still offer good value. Over the past decade, their profit pool has expanded rapidly, making them a significant part of the broader Banking, Financial Services, and Insurance (BFSI) sector.

These companies act as a proxy for the increasing wealth of Indians, as they not only reflect this trend but also actively facilitate and accelerate it. They are at the heart of the feedback loop that connects the economy and savings to the capital market and corporate performance. As such, high-quality capital market companies should be considered for long-term investment, particularly during price dips.

Do you think the market is pricing in the positive sentiment from the Trump administration regarding the trade deal, given the rally seen from recent lows?

India's stock market, as measured by the Nifty, has lagged behind global benchmarks in 2025, with a 6% year-to-date gain compared to the 12% rise in the S&P 500. While the Nifty has recently shown some outperformance, driven by positive sentiment around a potential trade deal, it will need to continue this momentum to fully close the gap with global markets.

Do you strongly believe that defence stocks won’t revert to lower valuations?

The valuation of Indian defense companies has already undergone a significant re-rating, and their future performance will likely be tied to their earnings growth rather than further valuation expansion. While the sector is set for long-term growth, this potential is already priced into their current valuations.

What are your expectations for the September quarter earnings, which will kick off next month, and for the RBI policy decision at the start of October?

We anticipate Nifty earnings to increase by 9% year-on-year in the upcoming September quarter. However, the management commentary from companies during the earnings season will be crucial for assessing the future of demand following the recent GST cuts.

The policy landscape has already seen significant positive changes, including a large fiscal push, along with continued monetary and regulatory easing throughout the current year. Given the surprise growth seen in the first quarter of the financial year, we expect the Reserve Bank of India to maintain the status quo at its October policy meeting.

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