Srinivas Rao Ravuri of Bajaj Allianz Life foresees a relatively high likelihood of earnings downgrades in FY26.
"The full implications of the US tariff measures are still unfolding and have not been entirely reflected in FY26 earnings estimates. Beyond the immediate impact, we anticipate significant second-order effects across multiple sectors," he said in an interview with Moneycontrol.
He remains confident in India’s long-term growth prospects and believes the country could ultimately emerge as a beneficiary of the evolving global landscape. However, market volatility may persist until the situation stabilizes, he said.
Amidst all the turmoil, "Banks appear to be the relatively better placed as the direct tariff impact is negligible and current valuations are also comfortable compared to historical averages," the Chief Investment Officer at Bajaj Allianz Life said.
Do you expect low double-digit earnings growth for this financial year, or is a 15–20% growth over FY25 achievable?
Earnings growth for Nifty50 companies in Q4FY25 is expected to remain subdued, likely in the low single-digit range. This would round off a relatively weak FY25 for Indian corporates from an earnings growth perspective. While this low base had initially led to expectations of a sharp recovery in FY26, these hopes are now clouded by recent developments surrounding tariffs, which have triggered downgrades in global trade projections and overall economic growth, both for India and globally. However, consensus estimates have yet to account for the impact of the US fully. Tariffs, we believe there is a reasonable probability that earnings growth in FY26 may also remain in the single-digit range.
What is the likelihood of an earnings downgrade in this financial year?
The full implications of the US tariff measures are still unfolding and have not been entirely reflected in FY26 earnings estimates. Beyond the immediate impact, we anticipate significant second-order effects across multiple sectors. While a select few companies may benefit in the short term by emerging as alternative suppliers to countries facing steeper tariffs, the overall impact is likely to be negative in the near term. Accordingly, we see a relatively high likelihood of earnings downgrades in FY26.
With inflation under control, do you think the RBI could lower interest rates to around 5% in the current financial year to boost growth?
CPI inflation declined from 5.2% in December 2024 to a low of 3.3% in March 2025. RBI projects CPI inflation at 4% in FY 2025- 26, which gives sufficient policy space to RBI for further rate cuts, especially at a time when the growth outlook continues to be moderate. However, given the lingering global market uncertainties on account of tariff wars, currently, we do not have a view of the RBI reducing the repo rate to 5%.
Is it advisable to remain cautious on the IT sector until there is more clarity on tariffs?
The outlook for the IT sector has undergone a sharp reversal in recent months. Initially, following the US elections, expectations of corporate tax cuts led to optimism around increased demand for Indian IT services. However, the announcement of new US tariffs has changed the landscape significantly. Even before this, US growth projections were softening, with the Federal Reserve cutting its CY25 GDP growth estimate by 40 basis points to 1.7% in March. Post-tariffs, several economists have raised the probability of a US recession in 2025, which poses a challenge for Indian IT companies in terms of demand.
That said, the sector has already witnessed a substantial correction, and in some cases, dividend yields now appear fairly attractive. These are high-quality businesses with a track record of strong cash generation and consistent shareholder distributions. The sector also enjoys relatively higher standards of corporate governance. Therefore, despite near-term headwinds, we continue to evaluate selective investment opportunities within the sector.
How do you interpret the current tariff concerns, which initially dampened equity market sentiment but whose easing has since lifted market mood? Do you believe this issue will soon become a non-event?
No. We do not expect this to be a non-event. The magnitude and potential impact of the US tariff measures are significant and could reshape the long-established global economic order. While the US has temporarily paused reciprocal tariffs for 90 days and exempted certain key items, softening the immediate effect, the broader consequences are likely to unfold over time.
India is relatively well-positioned in this context, owing to its lower dependency on US exports, resilient macroeconomic fundamentals, and positive bilateral relations. Additionally, India has responded promptly through monetary measures, and the benign inflation outlook is supportive. We remain confident in India’s long-term growth prospects and believe the country could ultimately emerge as a beneficiary of the evolving global landscape. However, market volatility may persist until the situation stabilizes.
Which sectors have you added during the recent market correction, and which sectors are still trading at attractive valuations that are worth adding to a portfolio?
Recent developments have shifted the focus toward companies that cater to the domestic market and are less exposed to the global trade disruptions. These businesses also stand to benefit from the tax reforms announced in the latest budget, which take effect this month. We have selectively added such companies during the recent correction. However, valuations in this space are generally elevated, and we have to be selective to ensure a good investment outcome.
Amidst all the turmoil, Banks appear to be relatively better placed as the direct tariff impact is negligible and current valuations are also comfortable compared to historical averages.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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