He highlighted how the upcoming festive season, coupled with well-timed policy measures such as GST cuts, budget tax concessions, and RBI rate adjustments, could provide a much-needed boost to consumer sentiment and corporate earnings.
Patwardhan also discussed the challenges posed by foreign fund outflows, IT sector pressures including H-1B visa developments and AI disruptions, and why he expects a gradual improvement in market performance in the second half of the year. Edited Excerpts –
Kshitij Anand: Western headwinds seem to have taken some pace off equity markets recently. How are you reading the current situation?Harshad Patwardhan: I think you are probably being too polite when you say that. Our markets have obviously not done well. And when you actually look around the world, it tells you how poorly they have performed relative to others. So yes, it has been a headwind.
I would say it is because of two or three things. One is internal: earnings have not really progressed over the last four to five quarters, and we have seen only earnings downgrades. Second, of course, is foreign selling over the last three months—and before that, since April, there were two or three months when there was some buying from foreigners, but the last three months have been significantly negative, so that is another headwind.
And the third, again internal, is the humongous supply of equity within our markets, both from growth capital being raised and, more importantly, a lot of promoter selling that has happened. Put altogether, that explains why our markets have not done well.
And clearly, as you were alluding to, in the last two to three months, the sudden change in the dynamics between India and the US on the trade front has really hurt.
Kshitij Anand: But there is another issue that came up, which was the H-1B visa. It might not have a large impact on the balance sheets of IT companies according to most analysts, but it could be a big sentiment hit. What are your views, and how will it impact the future environment for IT companies?
Harshad Patwardhan: You are absolutely right. Compared to the last time this issue first cropped up, many Indian IT services companies have significantly reduced their dependence on H-1B visas in particular.
But if you read this H-1B move in the context of the overall relationship between the two countries, it basically tells you that this is a sort of pressure being put on India—definitely—and the timing of it, just when our ministers were there to negotiate, is classic President Trump-style operations. It is also coming at a very difficult time for Indian IT services companies. This itself may not hurt too much in terms of earnings.
But two events are at play: one is that the demand scenario of customers is not looking very strong; in addition to that, the disruption from AI, in terms of productivity boosts and workforce impact, could not have come at a worse time for Indian IT services companies. Net-net, if you put it all together, the overall environment for these companies is far from benign.
Kshitij Anand: Absolutely. In fact, we have seen this from Accenture, where there were quite a few job losses, largely because of Gen AI or AI-related adjustments, which obviously would also impact the IT company environment in India. Now, yes, moving from IT companies to the US Central Bank and the Indian Central Bank—US Fed did cut rates, and we have an upcoming RBI policy meeting. What are your expectations?
Harshad Patwardhan: Our expectation for this policy meeting is that we do not expect a rate cut right now. I know some in the markets, probably in the minority, do expect a 25 bps cut, but we do not anticipate that in this meeting. We believe it might come in the following meeting.
Kshitij Anand: The upcoming month is a festive month, and the silver lining for D-Street could be the fact that we might close September on a positive note after falling for the past two months, albeit marginally. What are your expectations for the upcoming festive month, October?
Harshad Patwardhan: The festive month, in fact, seems to have begun well even before October, during Navratri itself. The context, as we all know, is the immediate GST cuts, which were very well-timed. They were flagged off by the Prime Minister on 15th August, and the expectation was that they would come in much later, but they were preponed, which I must say was excellent timing.
Sentiment in certain big segments, like auto, is very buoyant, and we have seen some news reports indicating that the season has really begun well. This is something we frankly needed because consumption in general has been so lacklustre, and managements have been complaining about the lack of consumption, particularly in urban areas over the last year or so. This trigger is therefore really helpful.
Our expectation is that things will look up. We are looking forward to hearing what managements have to say during the results season.
Clearly, the last quarter is not going to be particularly exciting—I do not think there are too many expectations from the July–September quarter—but we do expect some positive commentary on the festive season and how this quarter, October–December, pans out.
So, we might hear some good news finally, probably in January when the numbers are released.
Kshitij Anand: Let me also get your perspective on earnings. You did point out that earnings have not been good, and we have seen lacklustre results over the past two months. The government has done its bit with the GST bonanza. When will that benefit start reflecting for companies or India Inc on their balance sheets, considering most experts say it could come with a lag?
Harshad Patwardhan: Our expectation is that the GST cut has been very important. But before that, we should not forget that a tax concession was also given in the budget to leave more money in the hands of consumers. However, simply having money is not enough; consumer sentiment also has to be buoyant for discretionary spending. These savings would have accumulated over the last several months.
I would say there are three triggers: one is the GST cut, the second is the budget tax cut, and the third is the RBI policy rate cuts—100 basis points so far this calendar year. These measures clearly show that policymakers’ agenda was essentially to improve consumption.
We believe that from the second half of this year, this will start showing up in the numbers. If you look at estimates over the next one-and-a-half years, the outlook looks much better compared to what we have witnessed over the last 12 months.
For FY26, we expect growth compared to the previous year, and in FY27, growth should accelerate further. Overall, the earnings picture looks far better than what we have seen over the last 12–15 months.
Kshitij Anand: But there was one topic we discussed earlier—FIIs. Now, FIIs seem to be selling in a hurry, and it looks like there are two strong trends on D-Street: fear among FIIs and FOMO among DIIs. Meanwhile, money has been pouring into primary markets rather than secondary markets. Do you see this as a concern or just part of a market cycle?
Harshad Patwardhan: It is part of the market cycle. From April, after President Trump’s big announcement on tariffs, global emerging markets started receiving money.
As I mentioned earlier, in April, May, and June, even India received small FII inflows after a period of big selling. Unfortunately, in July, August, and September, sentiment soured because of the nasty surprise on the trade deal front.
If you recall, India initially seemed ahead of most other countries in signing the bilateral trade deal, but then we suddenly had that surprise, for whatever reason, which became a problem.
FII money is still going into other countries like Korea, Taiwan, and now particularly China. Our expectation is that once the bilateral trade deal issue is sorted out—even modestly—and as earnings start to rise in the second half, we expect FII money to return to the Indian market.
As you rightly pointed out, although they are selling in the secondary market, they are putting money into the primary market. So, it is not that they have given up on India; it is just that they want to see growth first. I believe that from the second half, we will start seeing that growth.
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