Daily Voice: These 3 sectors likely to be star performers in FY26, Q4 should see positive growth compared to Q3, says Green Portfolio's Divam Sharma

Divam Sharma is the Co-Founder and Fund Manager at Green Portfolio

Looking ahead to FY26, there are a few sectors - information technology, automobiles, and FMCG - that are likely to shine and deliver strong performance, said Divam Sharma, the Co-Founder and Fund Manager at Green Portfoli,o in an interview with Moneycontrol.

According to him, the Information Technology sector is expected to continue its solid growth trajectory, and FMCG is also looking good for FY26, with steady demand across urban and rural areas.

In Q4 FY25, he believes things are looking pretty good for India Inc., with a solid 7-8% revenue growth expected, thanks to strong rural demand and government spending. Operating profit margins should stay steady around 18.2%-18.4%, helped by a boost in consumer confidence, he said.

Do you expect Donald Trump's decisions to impact the US economy more than those of others?

When it comes to the US economy, it’s easy to think that Donald Trump’s decisions are the sole factor driving change, but that’s not the full story. While Trump’s influence on US and global politics is undeniable, other countries and global conditions have a significant impact as well. For instance, his tariffs on China, Canada, and Mexico were meant to protect American industries, but this sparked retaliation. Countries like China slapped tariffs on US goods, which backfired and hurt American farmers, manufacturers, and exporters more than anticipated.

Trump’s decisions, like tax cuts and tariffs, have also influenced the value of the US dollar. A stronger dollar makes imports cheaper but puts US exports at a disadvantage. On the other side, a weaker dollar boosts exports but drives up inflation. But here's the catch, the value of the dollar is shaped by a whole bunch of other factors, like Federal Reserve policies, global market trends, and geopolitical events. No single entity has absolute control over the direction it takes.

Do you expect more than just tariffs as a tool from the Trump administration in the weeks to come?

It looks like the Trump administration is gearing up to use more than just tariffs to shape the economy in the coming weeks. The recent deregulation push by the Environmental Protection Agency (EPA) involved removing over 30 regulations in a single day. This reflects a prioritisation towards fostering a more business-friendly environment, making it easier for companies to operate without being constrained by what are seen as excessive government regulations.

On the trade front, tariffs are still on the table, but the administration is likely to explore other tools like sanctions or more aggressive economic measures to maintain trade leverage and protect US industries. The push toward digital assets is also notable, with early signs indicating a more open stance on cryptocurrencies and fintech deregulation. Energy independence remains a priority, with policies aimed at boosting domestic energy production. All of these moves signal that the Trump administration is willing to explore a range of options to shape the economy moving forward.

Do you foresee the start of a new bull run in Europe?

Looking at the current state of the European markets, there’s a chance we’re entering a new bull run. The STOXX Europe 600 and MSCI Europe indexes are hitting their highest levels in decades, which is a strong signal of investor confidence. One of the key factors driving this optimism is the lower valuations compared to the US, where tech stocks have become quite pricey. Europe’s fiscal stimulus efforts and policy shifts have made the region more attractive to investors, and Germany’s move to loosen debt rules and invest heavily in infrastructure is likely to provide a boost to growth.

Add to that the EU’s massive 750 billion euro plan for recovery, which is focussed at defense and infrastructure. This is drawing in significant investment. But of course, it's not all smooth sailing. Global trade tensions, especially with the US, still pose a risk. Some analysts, including those at Goldman Sachs, are even lowering their European market forecasts, concerned about potential economic slowdowns. That being said, the momentum is there. If European governments continue their support for growth, and if investors remain confident, we could be in for a solid run.

Do you expect Q4 FY25 earnings to be significantly better than Q3? Which sectors will drive earnings growth in Q4?

In Q4 FY25, things are looking pretty good for India Inc., with a solid 7-8% revenue growth expected, thanks to strong rural demand and government spending. Operating profit margins should stay steady around 18.2%-18.4%, helped by a boost in consumer confidence. The RBI’s recent rate cut will also give companies a bit of relief, improving their interest coverage.

IT companies like HCLTech are seeing strong demand, especially in emerging tech, which is pushing growth. The auto sector, with brands like Tata Motors and Maruti Suzuki, is benefiting from an uptick in economic recovery and private consumption. FMCG companies like Nestle India and Hindustan Unilever are holding steady with consistent demand across both urban and rural areas. The steel sector is also looking up, with Tata Steel and JSW Steel riding the wave of strong domestic demand.

Of course, there are some risks to watch out for, like trade tensions and potential global economic slowdowns, but overall, Q4 should see positive growth compared to Q3, even if it's not explosive. There may be enough momentum to stay optimistic.

Which sectors are likely to be star performers in FY26?

Looking ahead to FY26, there are a few sectors that are likely to shine and deliver strong performance. The Information Technology (IT) sector is expected to continue its solid growth trajectory, with companies like Tech Mahindra and HCL Technologies benefiting from the rising demand for AI and other emerging tech solutions. This sector is poised for a strong year, driven by favourable market conditions and technological advancements.

Automobiles, especially brands like Tata Motors and Maruti Suzuki, are expected to perform well, thanks to the ongoing economic recovery and strong consumer demand. Private consumption is still on the rise, and the auto sector is well-positioned to capitalize on this momentum. The FMCG sector is also looking good for FY26, with steady demand across urban and rural areas. Companies like Nestle India and Hindustan Unilever should see solid earnings growth driven by margin improvements due to falling raw material costs.

Is it better to avoid the IT sector now, considering the protectionist moves in the US?

The growing wave of protectionism in the US is certainly stirring the pot for the IT sector, and it’s something investors should watch closely. Companies that rely on international supply chains and markets are finding it tougher to navigate. Restrictions on AI chip sales and the digital service taxes in places like the EU are adding to the complexity.

That said, it’s not all doom and gloom. Some companies are already adapting to these changes. For example, companies like TSMC and others have made shifts in their operations to both avoid US trade restrictions and to meet demands in the US. This kind of flexibility will probably become persistent if protectionist policies continue.

But you should not avoid the IT sector altogether. Protectionism may create uncertainty, but it also opens up avenues for companies that can pivot quickly to new circumstances. So, keeping an eye on the shifting US trade policies and ensuring a diversified portfolio could help manage the risks.

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.