Edelweiss MF CIO: Earnings Revival Key to India's Stock Market Rebound, FII Inflows Expected

Edelweiss MF CIO Sees Indian Market Rebound Driven by Earnings, FII Inflows

Trideep Bhattacharya, President and CIO-Equities at Edelweiss Mutual Fund, highlights that a significant turnaround in corporate earnings is essential for India's stock market to reverse its recent global underperformance. He anticipates that once earnings start showing positive momentum, Foreign Institutional Investor (FII) sentiment should improve over the next 12 months, potentially boosted by a gradual depreciation of the US dollar. Bhattacharya points out that after a period of stagnation, recent management commentaries and September-quarter earnings suggest the market could see 1-2% earnings upgrades. He also notes that Indian market valuations have become more attractive, with the Nifty 50 trading closer to its long-term average after a year of "time correction," moving away from previous premiums.

Key Headwinds Mentioned:

Past headwinds included an earnings downgrade cycle, US tariffs acting as a macro drag, and India being perceived as an "anti-AI" trade.

Potential Drivers:

Government initiatives like GST rationalisation, tax cuts, and rate reductions are expected to positively impact disposable income and consumer spending. A rebound in credit growth is beneficial for financials, and accelerated government decision-making is driving contract flows in defence, infrastructure, and railways.

Sector Views:

Bhattacharya has a contrarian, neutral stance on the Information Technology (IT) sector, believing earnings are bottoming out. He is selective in the renewable energy space, focusing on ancillary businesses with strong return ratios rather than just asset owners. He remains underweight on hard commodity-linked sectors like oil and gas, utilities, and telecom.

Investment Approach:

Edelweiss MF employs a "Growth at a Reasonable Price" strategy, guided by their FAIR framework: Forensics (financially clean companies with strong governance), Acceptable Price (stocks with at least 20% upside potential), Investment Style Agnostic (bottom-up stock picking), and Robustness (strong return metrics like ROE and ROIC).

Impact:

This news suggests potential positive sentiment shifts and sector-specific opportunities for investors, influencing investment strategies and market direction in India.

Impact Rating: 7/10

Difficult Terms:

• FII (Foreign Institutional Investor): Investors from outside India, such as foreign mutual funds, pension funds, or insurance companies, who invest in Indian securities.
• EMs (Emerging Markets): Countries with developing economies that are considered to be in the process of rapid growth and industrialisation.
• Earnings Upgrades: When financial analysts revise their forecasts for a company's future profits upwards.
• Stagnation: A period of little or no economic growth or progress.
• Contrarian Call: An investment strategy that goes against prevailing market sentiment.
• Valuations: The process of determining the current worth of an asset or company.
• Time Correction: A market adjustment where prices fall over a prolonged period without significant underlying fundamental changes, often allowing valuations to become more reasonable.
• Nifty 50: A benchmark Indian stock market index representing the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange.
• Forward Earnings: The projected earnings of a company over the next 12 months.
• Midcaps: Companies whose market capitalisation falls between large-cap and small-cap companies.
• Multiples: A valuation ratio, such as the price-to-earnings (P/E) ratio, used to compare the stock prices of companies.
• NBFCs (Non-Banking Financial Companies): Financial institutions that provide banking-like services but do not hold a full banking license.
• GST (Goods and Services Tax): An indirect tax levied on the supply of goods and services in India.
• GDP (Gross Domestic Product): The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.
• Basis Point: A unit equal to one-hundredth of one percent (0.01%).
• ROE (Return on Equity): A measure of a company's profitability that calculates how much profit a company generates with the money shareholders have invested.
• ROIC (Return on Invested Capital): A profitability ratio that measures how effectively a company uses the capital invested in its operations to generate profits.
• Ancillary Segments: Businesses that provide support or supplementary services or products to a primary industry.
• Franchise: The business or right granted to an individual or group by a company to operate a business under the company's name and brand.
• Hard Commodity-Linked Sectors: Sectors whose performance is closely tied to the prices of raw materials like oil, gas, metals, etc.
• Utilities: Companies that provide essential public services such as electricity, water, and gas.
• Benchmark Weights: The proportion of an investment portfolio allocated to a particular asset or sector, relative to its weight in a chosen market index.
• Commercial Vehicles: Trucks, buses, and other vehicles used for business purposes.