Fund manager Gaurav Didwania believes Indian equity markets have largely absorbed geopolitical worries, making corporate earnings the new primary driver. He expects the September quarter to show improved results fueled by festive demand and easier year-on-year comparisons. The strategy emphasizes sectors like premium consumer goods, B2B electrification, and telecom, while cautioning against earnings misses.
Indian equity markets are entering a phase where geopolitical concerns are taking a backseat to corporate fundamentals. According to Gaurav Didwania, Partner and Fund Manager at Qode Advisors, the market has effectively paid its "geopolitical tax," meaning these external risks are already factored into current prices. Investors are now turning their attention toward company earnings, where any sign of weakness could face stricter scrutiny than before.
Earnings Outlook for September Quarter
Looking ahead to the September quarter, there is an expectation for a stronger performance mix compared to previous periods. This outlook is supported by two main factors: a favorable year-on-year base and the inclusion of the festive season, which typically drives higher consumption. A key theme for this quarter will be volume growth. Rather than relying on simple price hikes to boost revenue, companies that can demonstrate an increase in actual sales volume are likely to be viewed more favorably.
Key Sectors and Themes
Within consumer discretionary spending, the focus is shifting toward "premiumization." This strategy involves companies moving toward higher-value products that cater to top-tier income segments, which have shown faster growth than the mass market. While this is an attractive trend, it often leads to higher valuations, making entry discipline a critical factor for investors to manage risk.
In the electricals space, the outlook remains positive for B2B electrification. Revenue growth in the cables and wires segment is being driven by structural demands from data centers and renewable energy projects. Conversely, sentiment remains more selective regarding consumer-facing electrical products like fans and coolers.
The telecom sector offers a different narrative based on operating leverage. This means that as revenue grows, the costs to serve those customers do not rise at the same rate, allowing a larger portion of revenue to flow directly into profits. With major players moderating their capital spending, any future tariff hikes are expected to lead to a significant boost in earnings and better cash flow generation.
Risks and Monitoring
While the outlook highlights specific growth areas, investors must remain aware of potential risks. A major external risk remains the price of crude oil. If global prices sustain levels above $95 a barrel, it could reignite inflation concerns and pressure the current account, which would negatively impact corporate margins.
Additionally, the market's current focus on earnings means that companies are expected to deliver on their promises. Earnings disappointments will be treated with less leniency in the current environment. For new-age companies, the investment lens remains selective, prioritizing those with a clear path to generating cash and improving profitability over those that continue to rely on heavy subsidies to run operations.