Daily Voice: This CIO expects earnings trajectory to get stronger through FY26, sees no US recession

Sanjay Chawla is the CIO - Equity at Baroda BNP Paribas Mutual Fund

Sanjay Chawla of Baroda BNP Paribas Mutual Fund expects the earnings trajectory to strengthen through FY26.

There was single-digit earnings growth across all quarters in FY25. This certainly provides a very favourable base effect for the current year, particularly in the second half of FY26, he said in an interview with Moneycontrol.

On the US economy, he believes there is likely to be a global slowdown, including in the US, but he is not factoring in an economic recession in the US as a base case at this juncture. “We are in a better place from the economic outlook compared to a couple of months ago,” said the CIO – Equity at Baroda BNP Paribas Mutual Fund.

Do you believe the risks of a US recession remain elevated?

We believe we are in a better place from the economic outlook compared to a couple of months ago. There was a point of time when we were staring at a significantly steeper tariffs scenario compared to the current situation. We believe that there would be further negotiations on tariffs which could bring them down even more. Hence, while there is likely to be a slowdown globally including the US, we are not building in an economic recession in the US as a base case at this juncture.

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Sanjay Chawla

Chief Investment Officer-Equity|Baroda BNP Paribas Mutual Fund

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Are you more concerned about Middle East tensions or the 90-day tariff deadline, given that markets have been consolidating for over a month now? Or do you think the market is simply waiting for June quarter earnings?

At this juncture we are more concerned about the former rather than 90-day tariff deadline. This is not due to recency bias. In case of tariffs, economics rationale tends to bring the parties concerned to negotiating table. However, in a military conflict national interest takes precedence over economic rationale. Further, as we have seen in a couple of military conflicts in the last 3 years, these have tended to last much longer than what anyone expected.

As far as June quarter earnings are concerned, what we would be looking for is the commentary on the outlook rather than the numbers per se.

Do you anticipate a strong second half of FY26 for corporate earnings?

We expect the earnings trajectory to get stronger through FY26. We have witnessed a single digit earnings growth across all quarters in FY25. This certainly provides a very favourable base effect for current year particularly in 2HFY2026.

Are you bullish on the retail sector?

In the long run the retail sector will continue to benefit on account of the move from unorganized to organized. Also, we would continue to see several parts of the country cross the threshold of per capita income where retail spending starts to boom. In the short term, the retail sector is a function of an increase in disposable income (ability to pay) as well as consumer sentiment (willingness to pay). We are optimistic about both the benefits of tax cuts as well as wage growth should start to flow through the demand in coming months.

Do you think investors should wait until after the 90-day tariff deadline to take a strong call on technology stocks, even though valuations currently appear reasonable?

We believe that it is important to look at these kind of stocks more at a strategic level rather than just an earnings outlook. The dynamics of the sector are changing with the increasing adoption of Artificial Intelligence (AI). Hence companies will need to re-think their existing service offerings as well as build capabilities around providing AI solutions. This will also open a wide array of opportunities which were hitherto non-existent. Hence, companies which are quick to capture these evolving trends are likely to be winners in the long run.

Do you expect heightened activity in private equity and promoter block deals?

We should look at private equity players like any other investor who would be looking to continuously invest and divest. However, when we look at an aggregate level, the overall participation of these players has only increased. And this is good news for corporate India as it means that more capital is available to fund growth. Also, an exit by a private equity partners encourages them to book potential profits and gives confidence on liquidity.

What is your strategy behind Baroda BNP Paribas Health and Wellness Fund?

Strategy for the Baroda BNP Paribas Health and Wellness Fund (‘Scheme’) is to capture the entire value chain of the ecosystem-Pharmaceutical companies catering to domestic market, generic companies supplying in USA, hospitals, contract research and contract manufacturing companies, diagnostic companies, retail pharmacies and medical devices companies. We also intend to invest in Insurance companies and all service providers in that space. Thus, there will be sufficient diversity in the portfolio across various subsegment.

Historically the sector has given risk adjusted returns, and the growth story for the industry has been secular in nature. Valuations are in line with the historic average. However, we see pockets of segments where the growth is expected to accelerate.

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