Daily Voice: Wage growth, jobs will drive earnings and economic momentum, says INVasset’s Anirudh Garg

Given the reports of a significant reduction in oil imports from Russia by refiners and the positive signals from Trump, do you expect the India–US trade deal to be finalized before the New Year holiday season, or at least see a reduction in the additional 25% tariffs?

The prospects for an India–US trade deal have improved meaningfully in recent weeks, but expecting a fully signed agreement before the New Year still appears slightly ambitious. Negotiations are clearly in an advanced phase, and the tone from Washington has turned notably more constructive. A key shift has come from Indian refiners scaling back December purchases of Russian crude—an issue that had created diplomatic discomfort earlier. With that pressure point easing, the environment for progress has become cleaner and more politically manageable for both sides.

However, a comprehensive trade pact requires procedural clearances and alignment on a wider set of tariff and regulatory issues, which typically take longer. What seems more realistic in the near term is a partial reduction or phased rollback of the additional 25 percent tariffs, especially if both sides want to signal momentum before the holiday season. A complete agreement is possible, but the odds favour incremental movement first.

Could the signing of the India–US trade deal trigger a new leg of the uptrend in the equity markets?

A confirmed India–US trade deal would act as a strong sentiment booster for the equity markets, even though a portion of the optimism has already been priced in. The market has been anticipating progress for weeks, but an official announcement—particularly one that includes tariff easing or clearer access for Indian goods—would reinforce confidence around India’s position in global supply chains. It would also strengthen the broader narrative of capital flows into manufacturing, technology, defence and export-linked sectors.

In the current backdrop of stable domestic liquidity, improving Q2 earnings and resilient macro fundamentals, a trade breakthrough could provide the catalyst for another leg of the uptrend. The reaction may not be euphoric or speculative, but a firm, sustained upward bias is likely, with investors rotating toward sectors that directly benefit from lower trade frictions. Much will depend on the breadth of the deal, but markets typically reward clarity—and this deal would deliver exactly that.

Do you think the recent IPOs from well-known companies were overpriced?

Some of the recent high-profile IPOs did appear aggressively priced relative to their fundamentals, especially when compared with listed peers. Several companies came to the market with valuations that already assumed strong multi-year earnings growth, leaving limited room for upside on listing day. This is why a few marquee names delivered flat or modest debuts despite strong subscription numbers.

At the same time, not every issue was overpriced—investors clearly differentiated between companies with clear visibility on cash flows and those still in a scale-up phase. The broader pattern suggests selective overvaluation rather than a blanket trend. As liquidity remains strong and promoter expectations elevated, pricing discipline will likely continue to be tested in upcoming issues.

Have the September-quarter earnings missed expectations, or have they turned out slightly better than expected?

September-quarter earnings turned out slightly better than the market feared, even though the performance wasn’t uniformly strong across sectors. Aggregate profit growth for the broader indices held up well, supported by strength in financials, select NBFCs, metal companies and oil marketing firms. Revenue growth also showed an improvement versus the previous quarter, indicating a gradual recovery in demand pockets.

However, the season wasn’t a clean beat. Some segments—especially autos, discretionary consumption and a few private banks—delivered softer numbers due to margin pressures and slower volume traction. Overall, the quarter can be characterised as a mild positive surprise: not spectacular, but better than the cautious expectations coming in.

Do you think wage growth and employment will be critical factors for earnings and economic growth going forward, even though affordability and tax benefits have improved?

Wage growth and employment will play a far more central role in sustaining earnings and economic momentum going forward. Although affordability has improved through tax reliefs and lower effective rates, consumption ultimately hinges on how much households earn and how stable that income feels. In recent quarters, urban wage growth has shown improvement, but rural income recovery remains uneven, making broad-based demand still dependent on stronger job creation.

For corporates, steady wage and employment trends directly support top-line growth and improve visibility in sectors such as FMCG, autos, real estate and discretionary spending. As India enters a phase of capacity expansion and manufacturing-led growth, the quality and pace of job creation will increasingly determine the strength of the domestic demand cycle, more than one-time tax benefits or promotional schemes.

Do you believe the demand outlook remains uncertain?

The demand outlook remains constructive but not without pockets of uncertainty. Urban consumption has been resilient, supported by steady hiring in services, improving affordability and strong festive spending, yet the recovery is uneven across categories.

Rural demand is still lagging, with income growth and sentiment improving slowly rather than decisively. Certain discretionary segments have also shown moderation after a strong post-pandemic run.

Global factors add another layer of caution. Fluctuating commodity prices, geopolitical tensions and ongoing tariff negotiations continue to influence corporate visibility for the next couple of quarters. So while the underlying trend is stable and supported by credit growth and government spending, companies are still approaching forward guidance with measured optimism rather than outright confidence.

Are you super bullish on small cap space?

The small-cap space continues to attract strong interest, but being “super bullish” on the entire segment would be an overstatement. Small caps have delivered impressive returns this year, supported by broad-based earnings improvement, improving balance sheets, and strong domestic liquidity. Many companies in manufacturing, defence, renewables, and capital goods are showing genuine growth momentum, which justifies part of the rally.

However, the segment also carries higher volatility and sharper corrections when sentiment turns. Valuations in several pockets have expanded meaningfully, making stock selection far more important than chasing the broader index. The outlook remains positive, but with a selective and measured approach—focusing on companies with healthy cash flows, disciplined capital allocation and clear visibility on order books—rather than a blanket bullish stance on the entire small-cap universe.

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