Daily Voice: Three key catalysts that could steer the markets, says top investment strategist

Jay Kothari is the Lead- Investment strategist & Head - International Business at DSP Mutual Fund

According to Jay Kothari, Lead Investment Strategist and Head – International Business at DSP Mutual Fund, the US Federal Reserve is likely to maintain current interest rates through most of calendar year 2025. However, any surprises in inflation or employment data could spark volatility in equity markets. A dovish pivot or a clearer signal of rate cuts, on the other hand, could trigger a broader risk-on rally, he said in an interview with Moneycontrol.

Kothari added that the upcoming Q1FY26 earnings season may offer early indicators of whether recent tax reliefs, transfer schemes, and abundant liquidity are beginning to drive a revival in rural demand. A reversal in the recent trend of earnings downgrades could also provide some relief to markets.

Lastly, he noted that de-escalation in Middle East tensions and a thaw in US–China trade relations could help stabilise global supply chains, ease inflationary pressures, and improve investor risk appetite.

Do you believe the market has largely discounted the Israel-Iran tensions and is no longer significantly concerned about them?

The markets have not seen any significant corrections post the recent escalations between Iran and Israel (Nifty is down ~1.5 percent), which indicates that, for now, the situation is being viewed as a non-event. This may be because the conflict has not yet spread to involve other countries in an active manner. However, we continue to closely monitor the developments, as any further escalation involving other nations could heighten vulnerabilities and lead to increased market volatility, potentially triggering a sharper correction.

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Jay Kothari

Senior Vice President, Global Head International Business and Lead Investment Strategist|DSP Mutual Fund

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From a pure trade perspective, India’s exposure remains limited, with a trade value of less than $4 billion with Israel and barely $1.6 billion with Iran. Crude imports from Iran have dropped to zero from a peak of $12 billion in FY19. Oil prices remain a key variable, as India is a net importer. Past extended conflicts have led to elevated crude prices. Brent’s modest 7–10 percent rise to ~$75 from early-June lows suggests a limited impact so far, especially when compared to past crises where we saw 20 percent-plus spikes. However, the threat of closure of the Strait of Hormuz remains significant, as nearly half of India’s crude and around 70 percent of natural gas imports pass through this vital corridor.
What could be the next key triggers for the market, given that the Nifty 50 has been rangebound, oscillating within a 700–800-point band, for the past one month?

While the Fed is likely to hold rates through much of CY25, any surprise in inflation or employment data could spark volatility. Conversely, a dovish pivot or a clearer signal of rate cuts may trigger a broader risk-on rally.

Secondly, the upcoming earnings season (Q1FY26) may offer early signs of whether tax reliefs, transfer schemes, and ample liquidity are translating into a rural demand revival. Reversing the recent trend of earnings downgrades could also provide some respite. Lastly, de-escalation in Middle East tensions and US–China trade conflicts could help stabilise supply chains, ease global inflation pressures, and revive risk appetite across markets.
What are your expectations from the Q1 FY26 earnings season, which begins next month? Is the market optimistic about a potential improvement in earnings growth?

While Nifty 500 companies reported 5 percent, 12 percent, and 7 percent growth in Sales, EBITDA, and PAT respectively in Q4FY25—with a decent set of consumer-facing companies showing margin expansion, continued weakness in parts of the economy has led to ongoing earnings downgrades across market caps for FY26E/27E.

Large caps have seen a 2 percent earnings cut, while small and mid-caps have seen cuts of 6 percent and 3 percent respectively. Q1FY26 (April to June quarter) earnings could mark the beginning of a cyclical rebound, with consensus expecting ~13 percent Nifty EPS growth for FY26. Early momentum is visible in sectors such as cement, energy, and consumption.
Do you still see any risks to the projected earnings growth of 12–13 percent for FY26?

With the continued earnings downgrades, absence of strong positive catalysts, and rising global uncertainties, particularly geopolitica, the projected 12–13 percent earnings growth could face risks. These may arise from delayed demand recovery, global volatility, margin pressures in commodities, and normalization in the financial sector. Overall, a selective approach is advisable, with a focus on value and earnings visibility.
Would you currently recommend taking a sizable position in the healthcare sector?

US generics are rebounding with new launches and a supportive currency, although tariff and pricing risks remain. We are overweight on the healthcare sector across most of our diversified mandates. While healthcare is often viewed as one sector, it comprises several sub-segments with distinct drivers. CDMO, hospitals, diagnostics, and the India formulations market all offer prospects for double-digit earnings compounding over the next few years. As with any sector, some pockets may appear overvalued, but on balance, we see several stock-specific opportunities worth considering.Do you still see opportunities in the defence and PSU segments, or would you prefer to wait for a correction given the current valuations?

We would prefer to wait for a price correction before adding further to this segment. The Nifty India Defence Index has rallied nearly 39 percent since March 2025, significantly outperforming the broader market. This surge has been driven by a strong order book, government reforms encouraging indigenisation, and increased private sector participation. However, valuations have now become stretched, with the index trading at a high price-to-earnings (P/E) multiple of around 57–61x forward earnings—well above historical averages and compared to other sectors.

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