Trump's unpredictability is driving the fear amongst FIIs now, Divam Sharma, Co-Founder and Fund Manager at Green Portfolio said in an interview to Moneycontrol.
US President Donald Trump has already hinted the possibility for reciprocal tariffs and tariffs on China has escalated the global trade war concerns. FIIs remained net sellers on a large scale since October 2024.
Further, according to him, the Market Mood Index is in the extreme fear zone.
With more than 15 years in the capital market, Divam believes the FY26 growth of the IT sector is expected to be better than FY25 but may not return to normalised pre-pandemic rates.
Do you foresee a strong growth comeback in the consumption space in FY26? Does that mean it is a strong buy now?
The Union Budget 2025 made it clear that the government is shifting its focus from government led capex to Private capital expenditure. The Income Tax rationalisation is a proof. These measures are expected to boost disposable income and stimulate private consumption; however, the effectiveness in significantly driving consumption remains uncertain due to the limited taxpayer base. The government has put in all the efforts to boost the sagging economy, be it cutting the interest rates or giving the tax relief but the geopolitical concerns, especially the power shift in the US is keeping FII on its toes.
We are tracking the events ardently and would advise investors to remain vigilant until there is some assurance of stability. India’s Macros are as strong as they can get, the companies in our portfolio have shown tremendous Q3 growth and we plan to sit tight as of now and play the rally, whenever it comes. For instance, a company that is into consumer packaging reported 35% growth in revenues (half yearly) and 125% growth in profits.
Do you expect credit growth to rebound to 15-16% in FY26?
If we look at FY24, credit growth was around 16%, but it has slowed to 11-12% in the current year. A rebound to 15-16% in FY26 will depend on multiple factors. Deposit growth remains a concern, with the credit-to-deposit ratio rising to 80.4%, indicating potential liquidity risks. Banks may need to offer higher deposit rates, squeezing net interest margins (NIMs).
Unsecured retail loans, such as credit cards and personal loans, are likely to face increased slippages, which could hamper growth. Microfinance lenders are also expected to face rising delinquencies. However, secured segments like vehicle and housing finance and mid-to-large corporates appear to be on firmer footing and may drive growth if corporate capex picks up, also backed by interest rate cuts. If inflation and interest rates remain stable, and deposit mobilization improves, a credit growth rebound is possible, but the sector will need to navigate ongoing risks.
Is the equity market still concerned about risks related to US tariffs? What other risk factors could emerge in FY26?
Yes, if you look at the Market Mood Index, it is in the Extreme fear zone. I agree that the Indian economy is showing the signs of slowdown but US tariff fear is overweighing on even the slightest of positive trends in the economy. Trump's unpredictability is driving the fear amongst FIIs now. He has already hinted the possibility for reciprocal tariffs and tariffs on China has escalated the global trade war concerns. The market runs on perception.
There are ample articles stating the overvaluation of Indian markets. This had added to more worries. As discussed before, yes, the government did give some relief to the middle class in a hope to boost consumption, but markets are driven by capital expansion and not some temporary tax relief. Defence, railways, infrastructure, renewable energy sectors saw negligible announcements.
Do you believe the FY26 growth of the IT sector will be significantly better than FY25, but still not near normalised growth rates?
The FY26 growth of the IT sector is expected to be better than FY25 but may not return to normalised pre-pandemic rates. Projected FY25 growth of 4-6% reflects ongoing challenges like reduced discretionary spending and delayed client decisions. However, factors such as anticipated global economic recovery, improved client confidence, shorter deal cycles, and the productivity boost from generative AI indicate potential improvement.
Companies like Infosys, Wipro, and HCL Technologies have shown mixed performance, with demand recovery in sectors like banking and increased AI adoption. In my opinion, potential rate cuts could further boost IT sector performance by easing cost pressures and driving higher IT spending.
Which sectors appear to be better for investment in FY26?
India’s privatization push is opening up investment opportunities, but let’s not overlook the underlying driver—efficiency and private sector involvement. At Green Portfolio, we invest in companies with strong capital utilization and a robust order book, aiming for a stable growth. The defense sector is thriving due to higher government spending. Make in India initiatives, and rising exports are offering long-term revenue stability. The electronics and semiconductor industry is booming, with India’s semiconductor market projected to triple to $300 billion by 2026, driven by global supply chain shifts and government incentives.
Then there’s the consumer discretionary sector, fueled by rising incomes, urbanization, and evolving consumer preferences. These sectors offer strong long-term potential, backed by solid fundamentals, favourable policies, and growing demand. The telecom industry also looks promising. One of the companies in our portfolio, posted a 15% increase in net profit despite having a 10% increase in sales, reflecting strong demand and operational efficiency.
Are you super bullish on the capital goods space?
No, we are neutral towards this space due to lack of valuation cushion.
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.
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