Daily Voice: This CEO expects corporate earnings to improve sharply in next 3 quarters of FY26

For the June quarter, he is expecting Nifty earnings to increase by 4.5% YoY. "But for the year as a whole we're expecting the Nifty earnings growth to reach 12% YoY," he said.

Pratik Gupta, the CEO & Co-Head at Kotak Institutional Equities expects corporate earnings to improve sharply in the next 3 quarters of FY2025-26. "This will be driven by lagged impact of the RBI's rate cuts, a post-monsoon uptick in rural demand, and a pickup in government capex in 2HFY26," he said in an interview to Moneycontrol.

For the June quarter, he is expecting Nifty earnings to increase by 4.5% YoY. "But for the year as a whole we're expecting the Nifty earnings growth to reach 12% YoY," he said.

On the upcoming Federal Reserve's July policy meeting, he is of the view that the central bank is unlikely to cut interest rates, and until there is more clarity on the impact from the Trump tariffs.

How do you interpret the June quarter earnings announced so far? Which companies have been the hits and misses?

We're still in the midst of the June Quarter earnings season and many companies are yet to report. So far, it’s largely been along expected lines with weak YoY revenue and operating profit growth across most companies, especially in the IT Services, banking and consumer sectors.

However, it's very company-specific. For example, we've had weaker-than-expected earnings or guidance from HCL Technologies, Tech Mahindra, Axis Bank, Colgate Palmolive, and Trent, while there have been strong results from ICICI Bank, Coforge, Dixon Technologies, JSW Steel and Eternal (erstwhile Zomato).

Do you see healthy earnings improvement in the coming quarters? As a result, do you expect full-year earnings growth to reach 15%, compared to the current expectations of 12-13%?

We do expect corporate earnings to improve sharply in the next 3 quarters of FY2025-26 - this will be driven by lagged impact of the RBI's rate cuts, a post-monsoon uptick in rural demand, and a pickup in government capex in 2HFY26.

For the June quarter, we’re expecting Nifty earnings to increase by 4.5% YoY, but for the year as a whole we're expecting the Nifty earnings growth to reach 12% YoY. We believe it's unlikely that we'll see a very sharp acceleration such that the full year Nifty earnings growth reaches 15%, as we expect the global economy to slow down in 2H CY2025 due to the tariff-related impact on global trade and that will impact growth in globally-exposed sectors like IT Services, auto ancillaries, commodities, and chemicals.

Is it better to stick to large private banks over others in the banking space, especially after considering Q1 earnings?

To begin with, we like the private banking sector as it is one of the few sectors where valuations are still relatively attractive in the context of an otherwise richly-valued equities market. This is partly due to a weak near-term earnings growth outlook.

Within private banks, we like all the large cap private banks in our coverage at current valuations as they have a strong deposit franchise and we believe loan growth will pick up in the second half, worries over net interest margins are overdone and asset quality is not a big concern at this stage. However, we also like some of the mid-tier private banks which should benefit from an economic upswing in the coming quarters, and they’re also attractively valued.

Do you expect the large IPOs lined up for the remainder of the current calendar year to go through? So far, 30 IPOs worth Rs 54,500 crore have been launched in 2025.

Although it was a slow start to the year for IPOs, we expect more issuances to go through in the coming quarters as economic growth picks up momentum and driven by strong local inflows into Indian equities.

The pace of IPO filings is robust and our ECM (equity capital markets) team expects IPO issuance by 150 companies - including some large caps - worth approximately $30 billion (Rs 2.58 lakh crore) in FY2026.

Do you still see the possibility of two more rate cuts by the RBI before it enters a prolonged pause?

Given the low inflation trajectory (June CPI was 2.8%) and the weaker-than-potential growth in the economy, we expect another 25-50bps of repo rate cuts by the RBI. The RBI governor has also said recently that a "neutral" stance doesn't mean rate cuts cannot happen.

What do you expect from the commentary of Federal Reserve Chair Jerome Powell this week? Do you anticipate a continuation of the Fed funds rate cuts in the next policy meetings?

The Fed is unlikely to cut interest rates in the July policy meeting, and until there is more clarity on the impact from the Trump tariffs. However, the focus has now shifted to whether Fed chairman Powell will stay on till the end of his term in May 2027, or whether he will down before that due to repeated calls by Trump for him to do so.

If Powell leaves under pressure, that may undermine confidence of global investors in the Fed's independence and in the US Dollar, which may lead to a spike in long term US bond yields. That would be negative for the US markets, although it may not be as bad for the rest of the world in the short-term as incremental global capital flows may not go as much into the US as earlier.

Do you think the impact of tariffs on the US economy may be less than previously expected?

The impact of tariffs on the US economy will be much lesser than when they were first announced on April 1, and that’s mainly because the eventual tariff rates are likely to be much lower than what was first announced - which was more of a bargaining ploy by the US to extract trade concessions from other countries.

Inflation in the US so far has been under control, and it does seem that some part of the tariff impact will be absorbed by the producing countries rather than all of it being absorbed by the US consumer. Tariff negotiations are still ongoing with many countries, but it does seem like it won’t be as bad as what markets were fearing 3-4 months ago.