Following Q1 FY27 results, Wright Research advises increasing exposure to financials and auto ancillaries while trimming positions in cement and oil marketing companies. Strong order books in industrials and steady demand in telecom and pharma are driving this outlook as market participants navigate geopolitical and input cost pressures.
Following the release of Q1 FY27 earnings, investment research firm Wright Research has updated its portfolio strategy, pointing toward sectors showing clear earnings resilience. The firm has highlighted industrials, telecom, and pharmaceuticals as key areas of interest, while suggesting a move away from oil marketing companies (OMCs) and cement.
Why Industrials and Telecom Lead
Industrials are gaining attention due to strong revenue conversion from contracted order books. Specifically, sectors related to defence, power transmission, and grid infrastructure are showing visible growth. This suggests that the work companies have already booked is now translating into actual revenue, providing more confidence to investors.
In the telecom space, steady performance is being driven by higher average revenue per user (ARPU), which measures how much money a company earns from each customer on average. Combined with the rapid adoption of 5G and domestic pricing power, telecom companies are proving to be more resistant to rising costs compared to other sectors. Meanwhile, the pharmaceuticals sector remains supported by stable domestic demand. Companies in this space are also seeing benefits from export revenue, aided by favourable currency movements.
Strategic Shift in Allocations
The firm suggests increasing exposure to financial companies and auto ancillaries. The preference for auto ancillaries over automobile manufacturers (OEMs) stems from the Q1 results. While many passenger vehicle manufacturers faced challenges from high input costs and tough competition, auto ancillaries showed better pricing power and diversified revenue streams, including exports and defence-related orders.
Conversely, the strategy recommends reducing exposure to cement and oil marketing companies. These sectors have faced deteriorating performance scores following the June-quarter results. Geopolitical tensions in West Asia have kept crude oil markets volatile, which has increased input costs and pressured profit margins for companies in the cement and chemical sectors.
Market Resilience and Future Outlook
Despite global geopolitical concerns, the Indian market has shown resilience. Nifty companies reported profit growth of roughly 10% for the first quarter, while Sensex companies saw growth of about 5%. Mid and small-cap companies performed particularly well, largely due to their focus on the domestic market, which shields them from some of the volatility linked to imported raw materials.
Looking ahead, a broader recovery for large-cap stocks is anticipated to materialize in late FY27 or FY28. This potential turnaround depends on several factors, including the stabilization of crude oil prices, which would help improve profit margins, and a possible drop in US interest rates that could encourage foreign capital inflows. For now, the focus is shifting toward companies and sectors that demonstrate positive earnings trends, rather than betting on an across-the-board market recovery. Investors may continue to monitor how these sectors manage cost pressures and maintain demand as the fiscal year progresses.