Daily Voice: No India-US deal by October could intensify pressure on earnings and economy, says Whitespace Alpha's Puneet Sharma

If the trade deal gets wrapped up by October, I don’t see a major hit to earnings growth. Companies just need clarity — once they know tariffs won’t escalate further, they can plan their costs and demand outlook better. In that case, I’d expect earnings to hold up close to current projections.

But if the deal drags on, that’s where the risks build up. Every extra month of uncertainty keeps tariffs in place and dents export competitiveness. That filters down into weaker margins and lower GDP growth, especially for labour-heavy sectors like textiles and gems. So yes, October is a real deadline — beyond that, the pressure on both earnings and the broader economy would be hard to ignore.

Is earnings recovery the most critical trigger for the market? Do you see a rally once the trade deal is resolved?

Absolutely. Right now, earnings recovery is the single biggest domestic trigger for equities. Valuations are already stretched, so the market is betting on double-digit profit growth returning. If companies deliver that, the market has legs to climb; if they don’t, it’ll be tough to justify current levels.

And yes, a trade deal resolution would be a strong catalyst. The tariff overhang has made global investors cautious. The moment we get a clear announcement that the US dispute is behind us, you’ll likely see a sharp relief rally. It’s not just sentiment — it also removes one of the biggest headwinds to forward earnings.

Do you expect earnings growth to accelerate from the December quarter onwards?

Yes, I do. By the October–December quarter, I expect earnings to look a lot stronger. This period always coincides with India’s spending season — festivals, weddings, year-end bonuses — and that brings a natural lift to demand. Sectors like FMCG, autos, consumer durables, and retail should see a meaningful jump in sales as festive buying kicks in.

Rural demand is also looking better after a favourable monsoon, which typically supports two-wheeler and staples consumption. At the same time, companies have had some relief on input costs, with commodities and crude prices easing compared to last year, which should help margins.

In addition, the benefits of RBI’s rate cuts are starting to filter through. Lower financing costs are boosting credit demand in housing, autos, and personal loans, and this will feed into earnings for both lenders and consumer-facing companies. Analysts are already projecting that Q2 could be the trough for earnings, especially in banks where margins have been under pressure, and that growth should re-accelerate in Q3.

Taken together, I see the December quarter as the turning point — the combination of festive demand, margin stability, and easier credit conditions should drive earnings momentum back into double digits and set the stage for a healthier 2026.

Apart from GST, what other reforms do you foresee from the government?

Given the current backdrop, I expect the government to focus on labour-intensive and export-facing sectors that have been hit hardest by tariffs. That could mean targeted incentives, faster tax refunds, or even soft credit lines for textiles, leather, and jewellery exporters to keep jobs protected.

Beyond immediate relief, we may also see a renewed push on manufacturing, land and labour reforms, and fresh support under PLI schemes. The big picture hasn’t changed — India wants to lift manufacturing’s share in GDP and create employment at scale. So I’d expect a mix of short-term relief for exporters and longer-term structural reforms aimed at jobs and consumption.

Do you anticipate continued pressure in the banking sector, given the Bank Nifty’s underperformance?

In the near term, yes. Banks are dealing with shrinking net interest margins because of rate cuts, and Q2 is likely to be another soft quarter. Add in some higher provisioning and it’s not surprising that the Bank Nifty has lagged the broader Nifty.

But I don’t see this as permanent. By the December quarter, loan growth should pick up with lower rates and festive demand, while margins stabilize once the bulk of cuts are passed on. The fundamentals — strong balance sheets and credit growth potential — remain intact. So while pressure may linger for a quarter or two, I expect banks to start catching up as earnings recover.

Do you believe companies will pass on the full GST benefits to consumers?

In principle, yes — companies will eventually pass on the GST rate cuts to consumers, but I don’t expect it to happen all at once. Businesses are dealing with their own cost pressures, from higher wages to input costs, and many will initially hold back part of the tax savings to protect margins. That’s a natural reaction, especially in sectors like FMCG or consumer durables where raw material costs have been volatile. So, while consumers may not see an immediate price drop across the board, the benefit will start to trickle in over the next couple of quarters.

Over time, competitive pressures make it almost impossible for firms to hold on to the gains. If one major player cuts prices to reflect the lower tax, others in the category will follow. We’ve seen this before — GST cuts often take a few months to fully show up on shelves. So my view is that consumers will definitely get the benefit, but with a lag rather than overnight. By early next year, we should see more visible price reductions, and that in turn will support stronger demand across categories.

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