Daily Voice: DSP Mutual Fund's Vinit Sambre calls Q2 earnings pivotal, flags H2 FY26 employment concerns

I’d say there is reasonable valuation comfort in OMCs at current levels, even if they are not outright cheap on long-term averages. Beyond valuations, the fundamental setup looks supportive. Policy backing from Ministry of Petroleum & Natural Gas and a broadly bearish crude macro are helping refiners and marketers.

Global oil demand remains soft, which should keep crude in the $65–70 per barrel range. That’s the sweet spot for OMCs because it allows them to earn above-normal marketing margins without triggering political pressure for price cuts.

There are near-term positives as well. Monthly LPG subsidy tranches start from November, and with international propane prices easing, LPG under-recoveries should shrink meaningfully.

Put together, valuations are fair, crude is supportive, policy risk is contained for now, and earnings visibility is improving. It isn’t a “deep value” trade, but the comfort level today is clearly stronger than what we’ve had in the past couple of years.

What, in your view, is the biggest takeaway from the ongoing September-quarter earnings season?

The biggest takeaway from the September-quarter earnings season is that the downgrade cycle is finally nearing an end. After a string of soft quarters, most companies have met or even slightly exceeded the already-low expectations. This is helping rebuild confidence that earnings can now recover gradually as demand improves.

The quarter itself shows a mixed but stabilising picture. Mass-consumption is still muted, but discretionary pockets like autos, jewellery and quick commerce are improving. IT services remain modest but deal bookings are picking up, and banks are seeing steady loan growth without any meaningful asset-quality concerns.

Looking ahead, banks should continue to deliver better earnings as credit growth improves and credit costs stay benign. Consumption could revive as GST cuts and lower interest rates filter through, though the persistence of demand beyond the near term remains the key monitorable. IT and pharma appear to be bottoming out, while telecom stands out with strong visibility, supported by upcoming tariff hikes.

Overall, this earnings season feels like a turning point: expectations have stabilised, results are holding up, and the early signs of a demand-led recovery are beginning to emerge.

After analyzing the ongoing Q2 earnings and observing strong festive demand, are you confident of healthy earnings growth in H2 FY26 compared with H1?

It’s still tough to make a precise call, but the setup for healthier earnings in H2 FY26 definitely looks better than what we saw in H1. The big positives are lining up: disposable incomes should improve as income-tax benefits and GST reforms kick in through the year, interest rates have moderated and festive demand so far has been strong across several discretionary categories.

That said, we need to stay a little cautious. The employment situation hasn’t fully recovered and that could partially offset the benefits from higher disposable incomes.

Is there a possibility of festive demand falling short, despite the hype surrounding ‘Bachat Utsav’ and the GST rationalisation?

There’s always a possibility that festive demand ends up softer than the hype around Bachat Utsav and the GST rationalisation, but we’ll only get real clarity over the next couple of months. That said, the overall setup for an H2 demand pickup still looks quite favourable.

Inflation is low, especially because food prices have eased, and that typically helps rural and mass-market categories. If this trend sustains, those segments should start seeing some recovery after a long stretch of weakness, which in turn supports a more broad-based demand improvement.

The one variable we need to watch carefully is wage growth and employment. If job creation doesn’t pick up meaningfully, it could act as a dampener even with better affordability and tax benefits. So while the ingredients for a healthy festive and post-festive demand cycle are in place, employment trends will ultimately determine how strong and durable the recovery actually is.

Would you advise investors to continue holding utilities, power infrastructure, and power financing companies in their portfolios?

I’d say investors can continue to hold exposure to the power theme, but the approach needs to be selective rather than broad-based.

On the utilities side, the setup is a bit soft. Valuations have already corrected from last year’s peaks because of weaker power demand and some execution slippages. Demand growth has been unusually muted at just about 1 percent year-on-year in H1 FY26, and that is likely to keep plant load factors low and earnings subdued in the near term. The long-term energy-transition story remains intact, but near-term fundamentals aren’t supportive of aggressive positioning in pure-play utilities.

The picture is much brighter in the electrical equipment space. Companies across the high-voltage value chain—transformers, switchgear, conductors and even gensets—are sitting on multi-year-high backlogs thanks to India’s massive Rs 9.15 trillion transmission & distribution (T&D) capex pipeline over 2022–32 and meaningful spending in overseas markets like the Middle East, US and Europe. Execution has been strong and margins continue to surprise positively because of pricing power, a better mix and higher utilisation levels. With record order books and improving ROEs, selective names in this segment justify the valuation premiums they currently command.

Power finance companies also look reasonably placed. They’re trading close to book, and with India pushing hard on renewables, grid modernisation and transmission upgrades, these lenders are well positioned to benefit from the financing needs of the sector.

Do you believe there is no major risk to the equity market unless there is a further delay in the India–US trade deal?

Most of the bad news is already well understood by the market: slower earnings, elevated valuations, the US imposing its highest-ever tariffs on India, and a rising trade deficit. India has also meaningfully underperformed the broader Emerging Markets basket year to date.

From here, the incremental setup looks better. The government’s measures to boost disposable incomes should begin supporting growth, and US–India relations are unlikely to deteriorate further, leaving more room for improvement than downside. After more than a year of consolidation, we believe most known risks are already priced in.

Of course, equities always carry the risk of unknown shocks, and it’s never wise to assume the risk cycle is over. But overall, the balance of factors is starting to shift toward improvement rather than deterioration, which sets a more constructive backdrop for the markets.

Some leading global investment players believe there has been no significant progress on the India–US trade deal yet, with continued concerns over the US services tax on India. Do you agree with this assessment?

I agree that progress on the India–US trade deal has been slower than many global investors had hoped for. The news flow from the US has been volatile, and it’s honestly tough to make a precise call in such an environment.

That said, I’d still lean slightly more constructive than pessimistic. As I mentioned earlier, most of the bad news is already known and reflected in market sentiment. India has underperformed for a year, risks from tariffs are well flagged, and expectations are already reset. From here, the scope for things to get materially worse looks limited, while the possibility of incremental improvement is higher.

Do you think premiumization remains the only strong theme within the discretionary consumption space?

Premiumization is the powerful structural theme driving discretionary consumption in India today, propelled by rising incomes, urban aspirations, and digital access.

Premium and branded goods from iPhones to SUVs amongst passenger vehicles and skincare are growing two to three times faster than mass-market items, with even Tier 2/3 cities fueling this shift. However, other strong trends—such as affordability-driven “value premium” products and experience-led spending are also emerging, making premiumization dominant but not the exclusive engine of growth.

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