Expect Q4 earnings to turn around market sentiments, says ASK Investment Managers’ Sandip Bansal

With the new US regime already imposing tariffs on several countries, and with our own currency depreciating, sentiments have understandably been cautious. However, as we move into Q4, we expect earnings growth to pick up, aided by increased government capital spending, the consumption boost provided by the Union Budget, and inflation controlling measures undertaken by the Reserve Bank of India (RBI).

So as numbers start to play out, valuations correct, and earnings growth benefits from a good low base, we believe that sentiments are also going to turn, and confidence is going to return in the markets. During the correction, investors should stay put and perhaps utilise the opportunity to put in money where there is good visibility of growth coming through.

Earnings downgrades, I believe, have largely bottomed out during the Oct-Dec quarter. Going forward, the consumer sector should do fine, particularly discretionary consumption. We are also liking sectors such as manufacturing, infrastructure, healthcare and pharmaceuticals, which have good long-term growth visibility.

We remain underweight on information technology stocks as long-term growth prospects don’t look good despite the falling currency helping currently. Similarly, growth in large banks is expected to be confined to lower double-digit growth, hence we are underweight on both public and private banks. When it comes to mid and small-cap stocks, investors should be wary if the earnings growth doesn’t materialise or if the companies have questionable balance sheets or management.

There is still uncertainty about the specific tariff measures for India, which does not bode well for markets. With the first phase of the Prime Minister’s bilateral discussions expected to be done by November, we can’t be sure of the US imposing 25 per cent reciprocal tariffs from April. I believe the two countries will negotiate based on their strengths within sectors and find a way to work with each other.

While the tariffs imposed on steel and aluminium will affect many countries, there have been more aggressive moves against trading partners like Canada, Mexico, and China. So far, India hasn’t seen specific tariff measures, partly because the government has pre-emptively reduced customs duties on a few items. This could mean that even if tariffs come into play, Indian exporters might still benefit on a tariff-adjusted basis, keeping sourcing from India cost-effective.

Most currencies have been under pressure versus the dollar—especially in emerging markets. RBI’s interventions have helped, but global uncertainties continue to play a major role. Once the global uncertainty and tariff give and take starts to settle down, we could see the rupee settling or even gaining strength. 

I expect a turnaround once the currency stabilises and global uncertainties start to recede, which have been the major reason for FIIs selling. As corporate earnings recover and government policies start to roll out, confidence in India’s growth story will get reinstated. Ultimately, the FIIs would also like to make returns and the Indian economy remains a large diversified market with the capacity to absorb large pools of money, offering multiple diverse sectors. So, as growth visibility starts to come back, and as the currency stabilises, one would expect FII’s interest in India to return.