Daily Voice | Vikas Gupta sees stronger earnings recovery each quarter; banking, finance may surprise

Vikas Gupta is the CEO & Chief Investment Strategist at OmniScience Capital

• Within industrials, the defence and railways related companies are likely to show significant earnings growth, said Vikas Gupta.

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Vikas Gupta, the CEO & Chief Investment Strategist at OmniScience Capital expects earnings recovery to get stronger each quarter. He believes that finance and banking is likely to show some surprises.

Other than that, "industrials should do well. Within this, the defence and railways related companies are likely to show significant growth," he said in an interview to Moneycontrol.

On the Union Budget front, according to him, the Government of India can unleash large capex plans under infrastructure, power, railways and defence. "Growth is a top priority for the government and it is likely to do all that is required to support it," he said.

Do you think earnings growth is concentrated in a few stocks, leading to a reduction in broader market breadth?

Currently, it might look like the earnings growth is clustered in a few sectors, however we expect it to become more broad-based in the coming quarters. While valuing companies for the long term one has to look at the longer term, normalized earnings and investment decisions should ideally be based on that.

So, this actually gives an opportunity where the near-term earnings might be not be attractive but the normalized future earnings are much higher giving an opportunity to do temporal arbitrage.

Do you expect the earnings recovery in Q3 FY26 to be stronger than in the previous quarter?

We are focused more on the FY27 and FY28 earnings and do temporal and value arbitrage based on that. Next quarter predictions is a very crowded trade and unlikely to provide any advantage from an investment point of view. However, we do expect earnings recovery to get stronger each quarter.

Which sectors are expected to lead the December-quarter earnings season, which is set to begin soon?

We believe that finance and banking is likely to show some surprises. Other than that, we also believe that industrials should do well. Within this, the defence and railways related companies are likely to show significant growth.

Do you think the level of monetary and fiscal stimulus seen in FY26 may not be feasible in FY27?

It is likely that the stimulus is likely to be even bigger. Given the near-zero inflation rates, RBI can actually cut interest rates significantly, of course, constrained by the forex rates impact. RBI could use other measures to provide stimulus and unleash more liquidity.

On the budget front, too, the Government of India can unleash large capex plans under infrastructure, power, railways and defence. Growth is a top priority for the government and it is likely to do all that is required to support it.

Are the growth tailwinds for NBFCs clearly visible at this stage?

It depends on the NBFCs. Consumer NBFCs are already doing well. But we are also optimistic on the infrastructure-oriented NBFCs and expect significant growth in combination with government plans for this segment.

Do you believe there is a disconnect between GDP growth and market performance?

GDP growth is more consistent year-to-year and it is only a rarity when a Covid-like situation turns into a degrowth. Otherwise, GDP always grows in real and nominal terms. However, markets do get ahead of themselves and start anticipating growth in future years. Market needs not only revenue growth but earnings and free cash flow growth as well.

Also, how much investors are willing to pay for the earnings or free cash flow is dictated not only by the Indian risk-free rates and expected equity risk premium, but also the risk-free rates in other countries and yields on other instruments besides equities as well.

So there will always be disconnect between GDP and market performance in the short-term. But if you see 5-year rolling periods, then the correlation between nominal GDP growth and market growth should be much higher.

How do you view the current US–Venezuela situation?

It is likely to have an impact on crude oil prices. Sentimentally, now there is another potentially very large player in the oil markets and thus the prices of crude and its derivatives should start cooling in the near to mid-term. There will be a cap on the price going above a certain level since that can potentially increase the supply significantly.

The other impact is on the defence preparedness of several smaller countries which would earlier not have paid too much attention to that. Now they will all want to safeguard themselves against similar action. This could be an opportunity for Indian Defence exports.

Given ongoing geopolitical tensions, do you think India could be a major beneficiary by accessing cheaper global oil from markets other than Russia?

Definitely, cheaper oil is better for India and now the pressure on global oil prices is definitely downward in the mid-term. This helps in terms of conserving our forex where the primary deficit driver is the oil imports.