So, relative competitive advantage of India actually looks incrementally better, which is particularly good for make in India over a period of time and that is what markets actually for the relevant sectors are beginning to cheer. These two certainly will help India over the next three-four years. The risk, which I think the second order risk that I see which the market will wake up to over the next one month or so, are two. One is on the back of this, if we do see a prolonged or rather higher inflation, then could the US get into recessionary conditions is something to be debated about.
And secondly, while US has fired its salvo, will the other countries around the world fire their salvos after having heard what Trump had to say up for debate, that is what we will get to know over the next one month or so, which are the second order impact, which the market will have to digest.
But give us some sense that which are the sectors that one should start looking at because this was one of the much awaited events that we just passed through and some bit of a clarity has already emerged. But, well, of course, the debate continues and the uncertainty rather continues whether such steps will be taken back, there will be some negotiations. But keeping that aside, pharma is definitely in pink of health. Some of the textile counters are reacting well. But apart from that which sectors do you believe offers opportunity right now?Trideep Bhattacharya: I would actually argue financials is in a good spot, though less to do with tariffs, more to do with how the ease of regulation that we are seeing, particularly in India in financial services and the positive rub off on financial services companies, particularly NBFCs, is something that I would point you to. So, basically, you might have heard that project financing norms have been pushed out and also liquidity norms are kind of getting eased and if you do see a rate cut, then NBFCs would see a fillip to their earnings and the starting point with regards to their valuations is certainly reasonable and they do not get impacted or swayed by the tariffs one way or another as they are entirely domestic focus, so that is certainly one sector that I would kind of point you to where things are probably on net balance improving. Otherwise, there are pockets within larger sectors where things are starting to look better. For instance, if you look at power, again, a domestic theme, we are heading into summer. But overall, with regards to where decision making in the government is coming through, we are gradually seeing local production being pronounced and they would see more light in the sun going forward, so those would be two areas that I would point you to on an immediate basis and then third would be basically real estate and particularly the building materials lot, which over the next two or three years could see better days ahead.
Net-net, I am pointing you to domestic earnings as opposed to earnings exposed to global factors, which probably will do better in the next year or so.
Also, you have mentioned a couple of sectors, of course, domestic facing factors like power, like financials, realty is what you are mentioning, but also talk to us about the consumption theme. I mean, consumption was expected to pick up, especially the discretionary end of consumption. But now with these tariffs playing out, of course, how do you see the consumption theme really playing out as far as India is concerned, especially the discretionary end of it where we were pencilling in the pickup to come in?Trideep Bhattacharya: So while overall, we would be kind of underweight consumption. We are overweight consumer discretionary. We think we have we have called out and we believe consumption could be the dark horse of calendar year 25, where the start off, particularly the first six months could be weak heading into the festive season. But as we get towards the back half of this year, along with the tax benefits that honourable finance minister has given us, which is effectively a salary hike of close to about 5% to 7%, we think that will translate into better consumption spending as we get to the back half of fiscal year 26.
So, not immediately, and hence I did mention in the first instance, but towards the back half of this year, you would see consumption, particularly on the discretionary front, a gradual pickup.
But also give us a sense on the IT because we have been discussing a lot. But yes, given the fact that there, the consumption could take a hit, the recessionary fears are once again trying in and that is the debatable point, but what is your take on IT given that the earnings, there is no much expectation right now.Trideep Bhattacharya: So, the expectations are benign but think of it from a company standpoint. If I am here, I am reporting in the next month and I have got to talk about an outlook for the full year.
The environment that I am living in right now is maximum uncertainty, where decision making is probably subdued given the uncertainty around Trump tariffs so far and also more generally with regards to the business or the sector that they are in.
And hence, the guidance that we might see from IT services companies coming out for fiscal year 26, for the ones that they give in the current season are likely to be fairly conservative and that is the reason why I would say that IT in the near term could be under pressure and particularly if they get into, if the US gets into a recession on the back of this, then that will be the second impact coming through.
But there will come a time in the next three to four months where decision making will reach its lowest and things will actually start to pick up, so this is a sector where we would be kind of underweight in the near term, keeping an eye at the right levels to start hardening again in the next three to four months.
I want to talk to you about the broader market because, in this drawdown, we did see the broader markets taking a bigger hit. Of course, they were sitting at the premium valuations and despite the correction, now do you see some bit of a comfort there in small and midcaps, how are you looking at that space?Trideep Bhattacharya: So, I would actually summarise the market conditions in two parts. One is that about a month or so ago, we had significant amount of macro uncertainty, along with uncertain earnings environment, which is a dreadful place to be, which is why you saw a meaningful amount of correction that stands to happen. As we stand today, as we know Trump’s outcome, the macro uncertainty is gradually receding and this macro uncertainty actually started with Indian election and subsequently when nothing got done over the last six-nine months in terms of economic decision making and ending with Trump’s measures that announced today so that was a period of macro uncertainty which is gradually ending.
But in this process or in this time frame of macro uncertainty, it led to weak earnings, which might persist for a couple of quarters longer. So, my expectation is that I expect earnings to recover in the second half of fiscal year 26. Markets might be a little ahead of that and maybe kind of, the right for people who think about market bottoms might happen in a few months ahead of that.
But till that time, as we go through the March quarter earnings and probably the June quarter earnings, with tepid expectations, we think we will probably be in a time correction kind of a mode before we see earnings pick up towards the back half of fiscal year 26 and that is when truly the better days for equity markets will start to come through, that would be my read on the markets in the way I see through for the next few months.
