Moneycontrol Pro Weekender | Green Shoots for the Second Half

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Dear Reader,

As we come to the close of the Q2 corporate results season, earnings are stabilising. A Goldman Sachs report explains it well, pointing out that “the year-long EPS downgrade cycle has lasted longer than typical median cycle (10 months) and stabilized over the past three months”.

The hope, of course, is things are going to get better in the second half of the fiscal year. This is not just a reflection of what the poet Alexander Pope wrote almost 300 years ago: “Man never is, but always to be, blest.” Nope, this hope has a solid basis in the boost to consumption provided by the GST rate cuts and a likely trade deal with the US. Add the plunge in retail inflation in October to a mere 0.25 percent, which indicates space for further interest rate cuts, which should aid and abet both consumption and investment. The Goldman Sachs report adds, “India’s relative premium to Asia has normalized (85-90% peak to 45% currently), historically leading to moderate outperformance.”

These factors have led to a decent jump in the Nifty in the past month. Although MSCI India is up a mere 3.6 percent this year to November 13, it’s up 0.9 percent in the month to November 13, compared to -0.5 percent for MSCI EM ex-China. That’s small potatoes, but, wildly mixing metaphors, out of acorns grow mighty oaks.

That upbeat sentiment finds reflection in our stock picks and results analyses this week. To take a few examples, we found Eicher Motors' prospects promising “because of a combination of factors, including pent-up demand for motorcycles”. For HAL, the management “aims to achieve double-digit growth next year”. We found “enduring momentum” in Ashok Leyland, “growth acceleration warrants rating upgrade” for Cello World, and “near-term earnings visibility remains quite good” for Cummins India. We also had good things to say about Aptus Value, Endurance Technology, Data Patterns, and Tata Steel, to name a few.

To be sure, you may still balk at the valuations of some stocks, such as Asian Paints, ABB, Bajaj Finance, though, as Mirae Asset MF CIO Neelesh Surana says, “A modest valuation premium is still justified, given structurally lower cost of capital”.

But as Longfellow said, into each life some rain must fall. The latest worry for the markets appears to be centred on whether the US Fed will cut rates at its December meeting. The CME’s Fedwatch tool puts the odds of a rate cut at 50:50, down from 94 percent a month ago. A DBS Group report said, “Investors are probably caught in the cross currents of several themes – overvalued US equities, K-shaped US economy, uncertain path for the Fed – thereby resulting in this odd trading dynamic.” No wonder the price of gold remains strong and we wrote about it here and here while the KPop Demon Hunters sang:

‘We're goin' up, up, up, it's our moment

You know together we're glowing

Gonna be, gonna be golden.’

And then there’s AI and the gnawing worry whether it’s a bubble. This report by Advait Arun from the Centre for Public Enterprise, appropriately titled ‘Bubble or Nothing’ should help. I’ll just highlight this excerpt from its conclusion: “It should be a cause for concern that the AI sector is not only the main source of growth in an otherwise sclerotic economy but is also a concentrated set of hyperscalers engaging in “circular” transactions with shaky long-term cash flow-generating potential. This sparkling sector is no replacement for industrial policy and macroeconomic investment conditions that create broad-based sources of demand growth and prosperity.”

For the market implications, look no further than what Jim Bianco said in this interview to themarket.ch: “If you buy a broad-based stock market index like the S&P 500, half your investment is tied up in the AI theme. I don’t think a lot of people realise that we’ve never seen a concentration level that high,” which brings to mind what Isaac Newton said after losing his shirt in the South Sea Bubble: "I can calculate the motion of heavenly bodies, but not the madness of people."

The rupee moved beyond the Rs 88.8 to the dollar mark this week before the RBI yanked it up. But a Jefferies report has this encouraging analysis: “Notwithstanding the US tariffs, India's FY26 CAD (Current Account Deficit) should be 0.5% of GDP - a 20-year low. FY27 should not be too different. Improving trend in FDI also helps the INR outlook. FX reserves are already at $690 bn (11 months of imports - a comfortable level). INR should stay around 90/USD mark over the next 12 months. Potential trade deal with the US and FPI flow reversal would be positives.”

The Q2, FY26 GDP data will be published at the end of this month. Many economists are predicting a reading above the RBI’s 7 percent forecast. But here too, there’s a worm in the bud—very low inflation will mean a low nominal growth rate, which will affect government revenues. There’s also a chance that low food prices will affect farm incomes, and we asked whether India’s rural mass consumption would lose steam. Mohamed El-Erian, in this FT article, free to read for Moneycontrol Pro subscribers, says, “Yet this focus on prices as a metric of affordability is far from sufficient. It ignores a critical component: what people earn. And it is income that is now under greater pressure, exposing the fragile financial foundation of too many households.”

But there’s no need to fret, in India monetary policy will surely ride to the rescue. Indeed, the loosening of monetary policy is already having an impact, with bank credit to the commercial sector improving from a year-on-year growth of 9.3 percent in end-June to 11.2 percent in mid-October.

A fitting song for this weekend would be TS Lombard economist Dario Perkins’ ‘Clock with No Hands’, made, in a deliciously ironic twist, with AI.

Cheers,

Manas Chakravarty

In case you missed them, here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity, and forex markets:

Stocks

Weekly Tactical Pick: Is the correction in this stock music to the ears for investors? IRCTC, Fujiyama Power Systems IPO, Tata Motors CV: Buy, sell, or hold, post listing? Tenneco Clean Air India IPO, GRSE, DOMS, ABB, Suraksha Diagnostics, Sai Life Sciences, Carysil, Physics Wallah IPO, Emmvee Photovoltaic Power IPO, bearish about China’s rise, Global Health, NCC, Apollo Hospitals, Britannia, Hindalco, Bajaj Auto, Saregama, Divi’s Lab, Trent, Cholamandalam Investment

Markets

Rethinking the Classic 60:40 Portfolio: The case for a 60:20:20 allocation

Is OFS exodus a warning sign?

Thematic schemes are booming, performance is not

Why day trading is not for everyone

Why India's stock lending mechanism remains a failed experiment

Why is SEBI warning against digital gold?

Flexi-cap funds lead October equity inflows as investors seek broad-based opportunities

‘Valuations have turned more reasonable; deal flow has surged’: Hiren Ved on why the AIF opportunity looks richer now

Financial Times

Does the K-shaped economy theory even make sense?

Reasons to be bearish about China’s rise

Gold rally tempts jewellers with a literal debasement trade

The golden age of US credit card rewards may be at an end

Companies & Sectors

EPL, Sun Pharma,  Bajaj Auto, Coal power plant utilisation levels slide on sluggish electricity demand, Bajaj Finance, Sugar exports quota a balm, but not cure for industry’s ills, The growing case for InvITs in infrastructure financing, ABB

Economy & Policy

No country for working women

India’s Power Tightrope: Growth, vulnerabilities, and opportunity in IEA World Energy Outlook 2025

Why India must build banks with global heft

Why is an early, blanket trade deal with Australia important?

M&A loans: RBI is opening the gates. Do Indian banks have the playbook?

How India can retain its healthcare workers

A welcome reset in government’s renewable energy plans

Why investors are split over the dollar’s fate as US shutdown ends

Geopolitics & Geoeconomics

COP30: Baku to Belém — In search of climate cash

The Eastern Window: Amid political uncertainty in Bangladesh, India faces tough choices

The US is wooing Central Asia under the shadow of China, Russia

Tech & Startups

India's startup founders turn investors in their own firms amid valuation reset

Back office renaissance: Genpact, EXL, Firstsource surge as BPMs ride the AI wave, outpacing IT peers

Apple's negotiations with Google show its innovation engine has run dry

Others

Personal Finance | When markets turn uncertain, scale back spending, not investing