Daily Voice: These 3 sectors to lead earnings recovery from 2HFY26, says LGT Wealth CIO who sees 5–8% YoY profit growth in Q2FY26

Consumption is becoming the big story. With GST cuts making many goods 10–15 percent cheaper and February’s income-tax reduction boosting take-home pay, consumers have more money to spend. Per-capita consumption heading toward $3,250 will likely speed up revenue growth.

Demand remains strong heading into Q2FY26 — festivals, weddings, and upbeat sentiment are driving sales despite high gold prices. Non-jewelry categories are still posting double-digit growth, showing underlying demand is healthy and broad-based.

Are banks showing that growth is returning? Is the rally in financials just beginning?

India’s economy is shifting structurally, with consumption’s share in GDP rising to 60 percent in FY25 from 55 percent in FY20. People have more disposable income thanks to wage growth, tax cuts, and smart fiscal measures like GST rationalization.

This boom in consumption is channeling savings into financial assets — mutual funds, insurance, equities. Sector AUM has grown at a 19 percent CAGR over the past decade to about Rs 77 lakh crore by July 2025. Within financials, PSU and private banks remain core holdings. Large AMCs are also well-positioned given their scale and pricing power, while brokers face regulatory hurdles.

Can Indian IT firms capture the AI opportunity?

Yes, and it’s just starting. Tata Consultancy’s plan to build over 1 GW of data-center capacity shows long-term belief in India’s digital infrastructure. This move opens a new profit pool for value-added resellers and distributors — areas the market often overlooks. I expect more IT firms to allocate capital toward AI infrastructure and data-center expansion. The opportunity is huge.

Which sectors look attractive given recent developments?

Policy support is driving demand. The GST Council’s September 2025 move to simplify rates into 5 percent and 18 percent slabs — cutting tax on key durables from 28 percent — means 7–10 percent lower prices. That’s real relief for consumers.

Urban premiumization, rural financing schemes, and export gains from a weaker rupee all help. Add GDP growth, PMAY housing demand, and PLI incentives — the setup is very positive. Companies are also gaining margin leverage through scale and localization.

Has the worst passed for earnings and tariff concerns?

The market’s been consolidating, balancing US tariff worries with domestic positives — GST cuts, lower risk weights for banks, and potential rate cuts. Sentiment suggests the worst may be behind us.

What’s your view on Q2 earnings and the outlook?

Q2 may be soft, but the second half may see a recovery. A potential US-India tariff resolution would bring back demand, could reignite FPI inflows, which are near two-decade lows. We expect 5–8 percent YoY profit growth in Q2FY26, setting up for acceleration later in the year.

If Trump and Modi strike a deal removing the 25 percent tariff, it’ll be a big win. With tax relief, GST 2.0, rate cuts, and a good monsoon, macro tailwinds look sustainable. Consumption, financials, and manufacturing should lead the recovery.

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