Where do you see the market headed now that the Q1 earnings season is almost over? Do valuations look comfortable given the recent consolidation and pockets of good performance?
Ashish Gupta: The last six to seven months have been interesting for the markets, with multiple macro events playing out domestically and globally. However, their full impact on underlying economic data is yet to be seen. The next two months will be crucial. In the US, jobs and inflation data will reflect the effect of tariff increases since the start of the year. The US dollar has also depreciated about 10% year-to-date, which has driven rallies in most emerging and European markets—up nearly 20–30%. India has underperformed, but if dollar weakness continues, flows to India should turn positive.
Earnings growth, however, has been lacklustre at around 7–8%. The expectation is that the second half will see an improvement, driven by a good monsoon, better liquidity, and lower rates. As the earnings base in the second half is lower, we could see better numbers emerging.
Do you see dips as a buying opportunity? How should investors strategise, especially with SIP flows at an all-time high of Rs 28,464 crore? Which sectors are you watching?
Ashish Gupta: Domestic flows remain very strong, but FII flows are volatile. From April to June, we saw $4 billion of inflows, followed by $4 billion of outflows in the last 45 days. Strong domestic inflows have been offset by significant supply in the market from both secondary share sales and the IPO pipeline—around $21–22 billion in the last three months.
We are focusing on companies and sectors with better earnings growth. We are overweight on NBFCs, expecting better margins and growth from RBI policy support and liquidity. We also like consumer discretionary segments such as retail and quick commerce, and remain overweight on select capital goods and power sector plays.
You have reduced your overweight stance on automobiles. Given recent optimism around festive demand and some valuation corrections, has your view changed?
Ashish Gupta: Passenger vehicle demand remains soft, though two-wheeler demand has picked up. We hold positions in a few companies gaining market share, but overall, the sector lacks signs of a broad demand revival. Inventory levels are already high ahead of the festive season. On the auto component side, demand from major international OEMs, especially in Europe, has also moderated. Hence, we have reduced exposure in both OEMs and components.
How do you see the overall consumption story, especially discretionary and high-end categories versus staples?
Ashish Gupta: Consumption can be divided into three buckets—mass (staples/FMCG), middle-income (urban), and high-end (travel, leisure, luxury retail). High-end consumption has done well for the last three years and continues to remain strong. In recent quarters, rural consumption has picked up, driven by strong agricultural income, and is now outperforming urban consumption. However, middle-income consumption remains weak, and we are watching the festive season closely for signs of revival.
What could be the next big trigger for the market?
Ashish Gupta: So, it simply has to be better earnings growth. So, as we have seen over the last 12-month nominal GDP growth slow down from double digit to single digit, it has kind of (10:51) been down on corporate topline growth and corporate earnings. So, if I look at corporate earnings growth is only 7-8%, it is not an exciting enough market for foreign investors. So, what we need to do is demonstrate going back into double digit earnings growth. Yes, there are select sectors in the economy, select companies that are still growing earnings about 15-20%, but that is only about 23-24% of the total cohort. So, we need a broader pick up in earnings growth.