While the latest quarter showed modest improvement in corporate earnings, Badshah cautioned that much of the upside came from commodity-linked sectors rather than broad-based growth. “Earnings have turned out to be modestly better than expectations, but for a meaningful rerating, we need domestic growth levers to fire together,” he told ET Now.
Badshah noted that government measures such as GST changes, lower interest rates, and improved liquidity have supported near-term sentiment, but sustained earnings momentum remains critical. “We need to see if this excitement holds post the festive season,” he added, pointing out that the next two to three quarters will determine the market’s trajectory.
Largecaps stable, broader markets to drive alpha
The largecap segment, led by banks, financials, tech, and select consumer names, has shown resilience. “Largecaps have done reasonably well, especially banks and tech,” Badshah said. “The next leg of upside will depend on how consumption sustains and whether the momentum continues into early 2026.”
While Invesco remains invested in largecaps for stability, Badshah highlighted that alpha generation opportunities lie within the midcap and smallcap space, which continues to show above-average growth.
Tech sector still attractive on valuation, AI headwinds temporary
Despite global headwinds from AI adoption, deglobalization, and regulatory risks, Badshah remains cautiously optimistic about Indian IT stocks. “Valuations are reasonable if you look at free cash flow yields,” he said. “AI is here to stay, but as discretionary spending in the US recovers, Indian IT could benefit, especially by FY28.”He added that the sector is already factoring in most of the negative sentiment, offering limited downside risk and potential upside as the global tech cycle stabilizes.
Value consumption and rural demand to drive next leg of growth
Badshah expects value-driven consumption to lead the next growth cycle, aided by lower inflation, falling rates, and rising rural income. “The premiumization theme dominated the past two years, but now rural and value consumption is showing acceleration,” he said.
Fully invested strategy, minimal cash holdings
Clarifying Invesco’s investment stance, Badshah said the fund house remains fully invested, with minimal cash exposure (2–3%). “We typically don’t take cash calls — even during Covid, we stayed invested,” he said.
Badshah added that the key to performance will be bottom-up stock selection in emerging growth sectors across mid and smallcaps, even as largecaps provide portfolio stability.
Key takeaways
- Indian markets need sustained 12–15% earnings growth for a meaningful rally.
- Banks, tech, and commodities led Q2 earnings beat; consumption sustainability is key.
- Midcaps and smallcaps remain the biggest alpha opportunity.
- Tech valuations attractive despite AI disruption; FY28 could bring growth revival.
- Value consumption and rural demand to drive 2026 momentum.
- Invesco MF remains fully invested, focusing on bottom-up growth opportunities