Daily Voice: Q1 earnings reveal pressure in select segments; uneven growth may weigh on sentiment, says Puneet Sharma of Whitespace

Tariffs are potentially going to see a larger impact on sales in the short term, till the businesses are able to stabilise their processes and alternative markets. However, tariffs are going to be a reality of life under the current US government based on all trade deals shaping up for the rest of world, including Japan, UK, EU etc. Therefore, the exporters will have to react to the higher tariffs for sale in US or focus on alternative markets in a bigger way.

While no one can claim to know what Trump will do in the terms of tariffs, I do expect the final form of the tariffs to be lower than the current 25% levels. Post the meeting between the Indian and US delegations later this month, the tariffs may be paused or reduced temporarily.

Do you think the markets are overreacting to the tariff concerns in India?

I wouldn’t call it an overreaction. In fact, the way Indian markets have responded to the recent tariff announcements has been surprisingly rational. The 25% tariff, as well as the penalties related to Russian-linked transactions, were expected to some extent and haven't caused any major disruption.

Instead of reacting emotionally or with panic, the market seems to be evaluating the long-term structural impact - which, in this case, appears manageable. This kind of maturity in the market's response reflects increased awareness among investors and a better understanding of macro developments. It’s reassuring to see that headline-driven fear is no longer dictating every move.

Besides tariffs, what do you see as the biggest headwind for equity markets over the next five months?

The primary headwind at this stage isn’t geopolitical or policy-related—it’s the trajectory of economic growth. While macro indicators remain steady, Q1 FY26 earnings revealed that certain pockets of the market are beginning to feel pressure. Sectors like FMCG and discretionary consumption saw margin challenges, and companies such as Hindustan Unilever and Britannia flagged concerns around rural demand softness.

On the industrial side, while capital goods performed well, names in auto ancillaries and construction materials faced higher input costs and demand volatility. If this trend of uneven growth persists, it could weigh on investor sentiment. Over the next five months, the focus will likely shift toward how broad-based the recovery really is and whether consumption and mid-cap earnings can sustain their momentum.

Given the attractive valuations following the post earnings correction, is the IT sector starting to look more appealing now?

That really depends on your conviction in the sector. If you believe in the long-term potential of Indian IT, then this correction might actually be a great entry point. We’ve seen some sharp declines recently, the Nifty IT index dropped almost 10% in July — and a lot of that came from muted earnings and cautious guidance from the big players.

There’s clearly some short-term pressure: longer deal cycles, softer client spending, and even workforce adjustments at some firms. But the core question is, do you see tech demand bouncing back? If you do, then you're essentially buying into that future at a better valuation today. It’s not about chasing momentum, it’s about being clear on your thesis and having the patience to let it play out.

Have you begun making significant adjustments to your portfolios after the June quarter earnings and management commentaries? Which sectors are on your radar for the remainder of FY26?

As a Category-III AIF running a market-neutral strategy, we don’t make portfolio shifts based on short-term earnings surprises or commentary. Our core equity exposure is benchmarked to the Nifty ETF, and we believe in the long-term compounding potential of quality Indian equities. Our alpha comes from identifying short-term inefficiencies, not from trying to time sectors or sentiment cycles.

That said, we’re closely watching how macro factors evolve. For instance, while monsoons have been above normal, the distribution has been uneven and that has a direct impact on rural consumption. So, we're hopeful for a pickup in FMCG demand in the coming months. Similarly, in autos, particularly the affordable segment and allied auto components, there’s room for recovery if rural tailwinds start to show.

Are you increasing exposure to the consumption sector at this stage of the cycle?

The recent tax relief for individuals earning up to Rs 12 lakh is a constructive step and could support consumption sentiment in the short term. It improves disposable income for a large segment of the population, which may, over time, translate into better demand across select consumer categories.

That said, from a broader perspective, consumption trends tend to even out over longer periods. So while the current policy backdrop is supportive, it’s important not to overestimate short-term impact or chase narratives.

Do you expect the RBI to revise its full-year inflation and growth forecasts in the upcoming August policy meeting? Could we potentially see the next rate cut as early as the September meeting?

We don’t think the RBI will change its forecast just yet. They’ve already started reducing the CRR in steps, which should add a good amount of Liquidity into markets. That alone might be enough to support the economy for now.

There is a chance we could see a rate cut in September, but it’s not very likely. The RBI will probably wait to see how this extra liquidity affects inflation. Also, with some recent movement in the USD-INR exchange rate, they’ll want to be careful before making any big changes.

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