Ashish Ranawade of Emkay Wealth Management expects mixed Q2FY27 earnings as high energy and raw material costs pressure profit margins. While broader macroeconomic challenges remain, he notes that export-oriented sectors may find support from the falling rupee. Investors are advised to prioritize risk-adjusted growth in key sectors like defense and electronics over simple valuation metrics.
The upcoming Q2FY27 earnings season is expected to be a test of corporate resilience, according to Ashish Ranawade, Chief Investment Officer at Emkay Wealth Management. As companies prepare to report their September quarter numbers, investors should anticipate a mixed performance. The primary challenge cited is the rise in commodity and energy costs, which are squeezing profit margins across various industries.
When companies spend more on raw materials and energy, and cannot pass all those costs on to customers, their profit margins often fall. This cost pressure, combined with global geopolitical uncertainties in the Middle East, creates a challenging environment for bottom-line growth. However, the depreciation of the Indian rupee could provide a silver lining for companies that earn significant revenue from exports. A weaker rupee means that their overseas earnings, when converted back into rupees, appear higher, potentially offsetting some operational costs.
Despite the macro headwinds, Ranawade highlights specific sectors that possess structural advantages. The aerospace, defense, and electronics industries are seen as pockets of opportunity. These sectors are benefiting from government initiatives aimed at reducing import dependency, commonly referred to as import substitution, and a steady rise in export demand. For investors seeking stability, sectors such as pharmaceuticals, specialty chemicals, and textiles are identified as defensive plays. These areas often demonstrate more consistent demand, which can be useful when broader economic growth is volatile.
Energy security remains a critical factor for the Indian economy. The ongoing global trade sanctions and their impact on supply chains continue to create friction in energy markets. While India’s energy import bill is a key point of observation, the market has shown a degree of resilience compared to earlier periods of regional conflict. Instead of focusing on index-level performance, the strategy involves looking at individual business strengths.
Regarding valuations, the perspective offered suggests that investors should move away from a rigid focus on market capitalization alone. Often, high valuations are merely a reflection of high market expectations for future growth. In an environment where global monetary policy is shifting, the focus should be on risk-adjusted opportunities rather than price metrics alone. Investors may want to look for unique global themes, such as artificial intelligence and data, to diversify their domestic holdings.
The key monitorable in the coming weeks will be management commentary during the earnings calls. Investors will likely look for details on how companies plan to manage raw material costs, the sustainability of demand, and their outlook for the second half of the fiscal year.