As global macroeconomic dynamics and domestic monetary policies continue to shape investor sentiment, VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, shared with BW Businessworld his nuanced outlook on the Indian stock market amid a phase of consolidation.. He also discussed the limited upside from the anticipated India-US trade deal, the sectors likely to outperform in earnings, why stock selection is key in the current market and more. Excerpts:
How much upside can the India-US trade deal offer in such a consolidation phase?
The market is in a consolidation phase. A decisive break above Nifty 25,500 appears difficult in the absence of positive triggers. The market has already discounted a US-India interim trade deal. A strong positive trigger for the market can come from the tariff rate on India if it is below 20 per cent.
You believe a sustained rally needs earnings support. Which sectors do you believe would outperform your earnings growth expectations of 10 per cent?
Three major sectors from the earnings perspective are financials, IT services and consumption. IT earnings will be weak. Segments of consumption will do well. In financials, particularly banking, earnings will improve from Q3.
Why do you recommend that this is the market of selective stocks rather than betting on sectors and themes?
A significant trend in earnings growth is the outperformance of companies within the industry. For instance, even while automobiles are reporting modest growth, M&M and Eicher Motors have potential to outperform. Domestic consumption themes like aviation and telecom are doing well. The pricing power of the market leaders in these segments have the potential to raise earnings growth.
After inflation data, do you believe that India has more room to reduce interest rates despite RBI’s neutral stance?
Inflation has surprised on the downside. With the present down trend in inflation, it is possible that the average CPI inflation for FY 26 may come at 3.3 per cent against RBI’s projection of 3.7 per cent. This leaves room for another 25 basis points (bps) rate cut. But the MPC is unlikely to go for a rate cut in August since the present stance is neutral and the RBI has already declared that the MPC has opted for front loading of rate cuts.
Why do you believe that the valuations are high?
The paradoxical trend in the Indian economy now is the strong macros but weak micros. Macros like GDP growth, fiscal and CAD, forex reserves, inflation trends are all positive. But micros (earnings) are weak. This will change. Strong macros will get reflected in micros too but might take some time. From the market perspective the challenge is the elevated valuations. Nifty is now trading at 22 times estimated FY26 earnings. This is higher than the ten-year average of 18.5. Therefore, a sustained rally is some time away.
IT and FMCG are struggling with tepid earnings growth, what’s the reason and how could these sectors overcome it?
If IT is to recover, order executions must improve. In the context of the tariff-related uncertainty in the US, corporations are going slow on technology spend. IT earnings will improve only if tech spending by corporations improves. Regarding FMCG there are green shoots of recovery. A good monsoon and improving rural incomes can accelerate the recovery. The second half of FY26 looks promising. The beneficial effects of the fiscal stimulus through income tax cuts and monetary stimulus though rate cuts will start showing up from Q3 onwards.
First published in Businessworld
