Speaking to ET Now, Bhattacharya said the second half of FY26 will likely see stronger growth and improved profitability across key sectors, supported by improving demand and macro tailwinds.
“We are at an inflection point. The earnings downgrade cycle that lasted for almost one and a half years is finally coming to an end. This result season marks the start of an earnings upgrade cycle,” Bhattacharya said.
Nifty companies show early signs of earnings momentum
Bhattacharya noted that while the past two quarters saw earnings downgrades of about 1–2%, the current results season has shown upgrades of nearly 2%, signaling improving fundamentals.
“For Nifty 50 companies that have reported so far, we are already seeing earnings upgrades — a positive reversal after several quarters,” he said.
“Management commentaries, especially from consumer discretionary and financials, suggest better days ahead.”
He expects earnings growth to accelerate from the December quarter onward, driving markets higher in the second half of FY26.
Defence sector set for multi-year growth cycle
Calling defence a “strategic growth engine,” Bhattacharya highlighted it as one of Edelweiss AMC’s top overweight sectors.
“The defence sector is of strategic importance globally, and India is entering a phase of strong investment after years of under-spending,” he said.
“Government capex allocation towards defence will remain strong, and order books for listed defence companies can support top-line growth for the next 10 years.”
He noted that while the listed defence universe remains limited, demand for such stocks is rising sharply, supported by domestic manufacturing initiatives and “Make in India” policies.
“Structurally, we are very positive on the sector. We keep adjusting weights based on valuations, but the long-term trend remains intact,” he added.
Consumer discretionary sector poised for demand upswing
Beyond defence, consumer discretionary is another space Bhattacharya is optimistic about.
He expects tax cuts, PSU wage revisions, and strong festive demand to boost consumer spending and corporate earnings in FY26–27.“The consumer discretionary sector has underperformed for the last three to four years. With GST and income tax cuts and wage revisions ahead, we expect a strong recovery,” he said.
“We particularly like autos, hotels, and apparel within this segment.”
He sees urban consumption revival and higher disposable income driving sustained growth across sub-sectors such as travel, retail, and lifestyle.
IT sector: From underperformer to contrarian opportunity
On the IT sector, Bhattacharya believes the worst may be behind, though near-term sentiment remains cautious.
“Earnings have been broadly in line with expectations, and much of the negativity is already priced in,” he said.
“As trade tensions ease and India–US ties strengthen, we could see sentiment improving for IT services.”
He pointed to recent developments such as H-1B visa fee relaxations and stabilizing global tech demand as signs that IT could become a contrarian play over the next 12–15 months.
“We are selectively positive on IT as a contra bet in our portfolios,” Bhattacharya said.
Macro view: Better growth prospects ahead
According to Bhattacharya, the next 12 months will be shaped by three key themes:
- Earnings upgrade cycle beginning
- Global trade normalization
- Domestic consumption recovery
“India’s macro setup remains solid. Fiscal support, GST rationalisation, and improving credit growth will support earnings momentum,” he noted.
He expects high double-digit returns from Indian equities over the next year as valuation stability combines with improving corporate performance.
Outlook: Markets entering a new growth phase
Bhattacharya concluded that markets are now transitioning from consolidation to growth, with sector leadership likely to broaden.
“The coming quarters could mark the start of a sustainable growth phase for India Inc.,” he said.
“Investors should focus on sectors like defence, consumption, and select IT names for medium-term wealth creation.”