Anil Rego, founder and fund manager at Right Horizons, has started focussing on consumer discretionary, wealth management, and manufacturing now, with the worst seems to be behind for the market.
According to him, the consumer discretionary sector is poised for significant growth, driven by structural factors such as urbanization, rising incomes, digitalization, and evolving consumer preferences with key trends such as premiumization & shift from unorganized to organized.
In case of wealth management, Rego, a seasoned investor who for over three decades has been making contrarian bets, sees significant untapped potential for the wealth management sector, while on the manufacturing, he believes infrastructure spending is likely to remain a key priority, and domestic pipe manufacturers will benefit from increased demand driven by construction, water supply, and sewerage systems.
What is the most important factor to watch out for in the March quarter earnings season that will kick off next month?
Earnings Stability and Growth: Monitor whether the earnings trajectory stabilizes after three consecutive quarters of single-digit PAT growth for Nifty and BSE500. Consensus Nifty estimates for FY26 have already been downgraded by ~3.9% since January 2025, making further cuts a key risk.
Consumption and Rural Demand Recovery: Signs of a demand revival, especially in rural consumption, will be critical. Easier monetary policy, improving employment trends, and government spending could provide a tailwind.
Margin Pressures and Cost Trends: Focus on the impact of raw material cost trends and operating leverage on margins across sectors. Input cost inflation or lagging price hikes could affect profitability, especially in manufacturing and consumer-facing sectors.
Financial Sector Performance: With banking and financial services forming a significant portion of Nifty earnings, NIM trends, credit growth, and asset quality dynamics will heavily influence the overall earnings picture.
Sectoral Divergence and Mid-Small Cap Rebound: Assess whether mid and small-cap companies, which experienced sharper corrections and valuation deratings, show signs of earnings growth normalization. Their performance could indicate broader market health and investor sentiment.
Is it better to buy technology stocks after the tariff news on April 2 and the Q4 FY25 earnings season?
The IT services companies delivered a mixed performance during a seasonally weak quarter (Q3FY25), with major firms offering underwhelming guidance upgrades. Following the Q3FY25 results, we believe that revenue expectations for FY26 and FY27 have been moderated across the market. However, there were some encouraging signs in select segments. The recovery in tech spending, which had been largely driven by the BFSI sector over the past six months, now appears to be extending into other verticals such as Hi-Tech and Retail.
If the US tariffs extend to services or IT-related exports, Indian technology firms may face margin pressures or pricing headwinds. The uncertainty surrounding the escalation of tariff wars is expected to impact sentiment in the near term and delay the recovery of the IT sector. However, the medium to long-term outlook for Indian IT companies remains optimistic, as enterprises are likely to gradually increase discretionary spending and undertake more transformational initiatives to stay competitive and adaptable in an evolving technology and AI-driven environment.
Which sectors have you started focussing on now that the worst seems to be behind us?
Consumer Discretionary
With a potential recovery in rural consumption and rising disposable income due to fiscal measures, sectors like automobiles, QSRs, and durables are likely to witness demand revival.
Easing inflation and improving sentiment could further support volume growth.
A blend of robust consumer demand and ongoing investments in infrastructure and industry is key to sustaining long-term economic growth.
The move to waive Rs 1 lakh crore in direct taxes and provide full tax exemptions for incomes up to Rs 12 lakh is expected to drive consumer spending, positively impacting sectors such as FMCG, automobiles, and retail.
The consumer discretionary sector is poised for significant growth, driven by structural factors such as urbanization, rising incomes, digitalization, and evolving consumer preferences with key trends such as premiumization & shift from unorganized to organized.
Wealth Management
The wealth management industry in India has witnessed a sharp increase in the HNI and UHNI segment in recent years. Projections indicate that their combined financial assets will grow from $1.2 trillion in 2023 to $2.2 trillion by CY2028. At present, only 15% of financial wealth in India is managed professionally, compared to 75% in developed markets, highlighting significant untapped potential for the wealth management sector.
The recent overhaul of the personal income tax structure, including the introduction of a ‘nil tax’ slab up to Rs 12.00 lakh (Rs 12.75 lakh for salaried taxpayers after factoring in the standard deduction), is expected to positively influence investment patterns.
Manufacturing
We expect selective companies to deliver good growth on the back of execution of a robust order book and remain structurally positive on the sector from a near-to medium term perspective on the back of robust capex cycle and healthy order inflows.
With a promising budget that is likely to boost consumption, we are entering a growth and quality cycle and we believe consumption-oriented themes are set to attract liquidity and expected to do better going forward. Additionally, the following sectors appear to benefit.
Domestic Pipe Manufacturers: Infrastructure spending is likely to remain a key priority, and domestic pipe manufacturers will benefit from increased demand driven by construction, water supply, and sewerage systems.
Do you expect the relief rally in the market seen in the second half of March to continue going forward?
Markets have experienced a decline since reaching their peak in September 2024. This correction in the broader markets offers a "breather" for long-term investors.
A slowdown in growth amongst global uncertainty has unnerved the market sentiment. Q3FY25 earnings growth was flat, with single-digit PAT growth of 5%/7.1% for the Nifty and BSE500 respectively.
The Nifty was trading at a 1-year forward P/E of 19.3x, near its 10-year long term average (LTA). Meanwhile, the sharp correction in small and mid-cap stocks has derated the PE ration of mid and small-cap indices below their LTAs.
We believe that most of the earnings downgrades have been factored in, especially with the potential for a consumption revival in FY26, driven by easing monetary policy and improving employment conditions.
We expect the market to stay under pressure through Q4FY25 and recover from Q1FY26 as earnings stabilize and global stresses ease. However, the markets have been extending their gains consecutively for the sixth trading session, likely signaling that markets have bottomed out. We expect the market’s performance from hereon will be driven by earning growth momentum with rate cuts acting as tailwinds.
Which are the good proxy plays in the financials space?
Asset Management Companies
Increased Disposable Income: With a reduction in tax liabilities, individuals will have more disposable income. This could lead to higher savings, which are likely to be directed into systematic investment plans (SIPs) of AMCs, benefiting mutual fund inflows. This is expected to be a key advantage for AMCs as the potential rise in disposable income could stimulate more investments in their products.
Rising retail participation in equities and increasing SIP inflows position AMCs as strong beneficiaries of India’s evolving equity culture.
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.
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