Daily Voice: Whitespace Alpha's Puneet Sharma expects steady recovery in earnings rather than a rapid rebound, after weak Q2 numbers

Retail investors are drawn to F&O because it offers a hands-on trading experience and learning potential that’s hard to find elsewhere. This attraction isn't a result of lax regulations; it’s the absence of other accessible and similarly rewarding alternatives. Think of it like an IIT JEE coaching class: only some make it to the top, but many are willing to try.

SEBI’s latest measures—like increasing lot sizes and adjusting expiry schedules—will certainly curb participation, and yes, retail investors will feel this pinch. But will this address the underlying issues in F&O trading? That’s an open question. SEBI’s intentions are clear, but the real impact will unfold in the execution details.

Do you think the worst is over for the market, or do you foresee another 5-10 percent correction from current levels?

This question is exactly why more investors should have access to market-neutral opportunities, like those available through AIFs. Investors in this segment generally fare better in volatile times compared to mutual funds, and they’ll benefit as markets rebound too.

The market has indeed taken a hit, but valuations are still on the high side. Despite a recent blip in corporate earnings and rising inflation, India’s growth fundamentals remain intact. There’s no fiscal recklessness or significant macroeconomic disruption, just a few bumps along the way. A positive shift in sentiment could quickly lift the market; without it, we may see some continued dips as valuations seek stability.

Are financial stocks looking cheap?

Financial stocks, especially in banking, haven’t fared any worse than the broader market. While the PE ratios in banking might appear more attractive than high-growth sectors, they’re not quite low enough for bargain hunters. Bottom fishers will still find limited comfort here, as these stocks are not deeply undervalued relative to their earnings potential.

Which sectors have you started taking exposure to, especially after the 10 percent correction in the market?

Our strategy is to beat the market using F&O each month. While we hold positions tracking the benchmark, we generate alpha by trading derivatives—so we don’t anchor our positions to any specific sector. It’s an approach that allows us to remain agile and avoid the constraints of sector exposure.

Do you see the RBI revising its growth forecast lower and inflation higher?

Inflation is certainly up, but we’re still within manageable levels compared to past highs. While this may slow down the pace of rate cuts, we don’t expect drastic changes in growth forecasts. The uptick we’ve seen isn’t likely to prompt immediate action, so for now, steady as she goes.

Do you expect a strong earnings recovery in Q4FY25, especially after weak Q2 earnings and a likely bit of recovery in Q3?

An earnings surge won’t happen overnight. We anticipate more of a gradual improvement based on stable fundamentals, which should gradually attract foreign portfolio investors (FPIs) back into the market. A strong recovery might not be around the corner, but we’re expecting a steady climb rather than a rapid rebound.

Do you expect the US election outcome and US dollar factors to continue hurting market sentiment?

The US election outcome, while influential, isn’t likely to alter India’s fundamentals. Indian markets are largely decoupled from the direct risks tied to US politics, though sentiment may take some time to stabilize. With inflation up, we don’t anticipate major rate cuts, which should keep the rupee from veering too far off course. The currency impact from our North eastern neighbours is manageable, and India’s economic outlook remains resilient amid the external noise.

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