With the majority of numbers for the March FY25 quarter having been declared already, "I do not see a broad-based earnings downgrade happening in the market," said Aniruddha Sarkar of Quest Investment Advisors in an interview to Moneycontrol.
According to him, it is safe to assume that the worst of the earnings downgrade cycle is behind already. And in the coming quarters, "we could see the breadth of earnings upgrades also increasing," he said.
The CIO and Portfolio Manager at Quest Investment Advisors has been overweight on Smallcaps and Midcaps in his portfolio for the last six quarters, having almost 55 percent weightage. "Some of the highest earnings growth over the next three years would be seen in select companies in the Smallcaps space," he said.
Are you bullish on the equity markets, considering that most risks now appear to be behind us?
There is no reason not to be bullish on the Indian markets, as I am a strong believer that India would continue to outperform other global economies on GDP growth, and that would also get reflected in its stock market performance. I believe most of the headwinds of the last several quarters like FII selling, Dollar Index rising, Rupee weakening, corporate earnings weakness, tariff uncertainties and geopolitical risks have mostly become tailwinds for our markets, and this could lead to sharper growth in earnings for various companies and get reflected in their stock prices as well.
However, a word of caution here is that investors should focus on the quality of earnings and not get carried away. Bottom-up stock picking will become the key differentiator in the market over the next year.
Do you believe the worst of the earnings downgrades is behind us now, after reviewing Q4 earnings and management commentaries?
Although the Q4FY25 results season started with muted expectations, the reported numbers so far show inline sales while EBIDTA and PBT have been marginally better than consensus estimates. With the majority of numbers having been declared already, I do not see a broad-based earnings downgrade happening in the market, but on the contrary, I am pleased to see earnings upgrades happening in selective companies. Thus, it is safe to assume that the worst of the earnings downgrade cycle is behind us already, and in the coming quarters, we could see the breadth of earnings upgrades also increasing.
Do you think the IT sector remains largely exposed to uncertainty?
I have been underweight on IT as a sector for the last 4-6 quarters and do not yet see a strong case for changing my view. All large IT services companies reported a sequential revenue decline for the first time since Q1FY21. This decline can be attributed to delayed project ramp-ups, weak performance in certain verticals, and delayed discretionary IT spending owing to tariff woes in the US and the rest of the world.
I think the uncertainty remains in the near to medium term as most IT services firms will report modest growth in FY26, due to deferred, cautious client spending, and uncertain demand stemming from tariff and macro uncertainties.
Which sectors give you confidence about delivering healthy earnings growth in FY26?
Some of the sectors where I see strong earnings growth in FY26 would be power capex-related companies (transformers, EPC players, etc), hotels, capital market-related companies (AMCs, exchange, intermediaries), and consumer discretionary companies (new age companies, retail, etc).
Are you bullish on the real estate segments?
After remaining bullish on the real estate sector for almost four years since August 2020, I am now not so bullish on the sector owing to multiple reasons. Affordability is one factor in many markets, and another is oversupply, which has come up in the last several quarters. Also, with indexation benefits going away in the sector, a large category of buyers, which was predominantly the investor class, has reduced in the sector. However, with the interest rate cycle turning and home loan rates reducing going ahead, we could again see a revival in the sector from a demand perspective in select pockets.
Have you started accumulating midcap and smallcap stocks, given the several accommodative economic policies?
I have been overweight on smallcaps and midcaps in my portfolio for the last six quarters, having almost 55 percent weightage, and continue to look for bottom-up ideas in this market-cap space because some of the highest earnings growth over the next three years would be seen in select companies in the Smallcaps space. Market volatility and fear factor among investors from time to time throw some good value buys in this space.
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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