Emkay Investment Managers Foresees Stronger FY26 Earnings Driven by Premium Consumption and Sector Growth

Manish Sonthalia, Chief Investment Officer at Emkay Investment Managers, projects a significant strengthening of corporate earnings growth in the second half of the fiscal year 2026. He forecasts full-year Earnings Per Share (EPS) growth for FY26 to be around 13%-13.50%, an increase from previous estimates of 10%. This optimism is primarily attributed to declining inflation and a subsequent rise in consumer spending, bolstered by potential GST cuts.

Sonthalia highlights premium consumption as a key driver for the next phase of market growth, noting that urban demand remains robust and the premium segment within discretionary spending is experiencing sustained and predictable demand. The Banking, Financial Services, and Insurance (BFSI) sector is also expected to perform well, supported by steady credit growth and improving net interest margins, particularly from the third and fourth quarters of FY26, assuming no further interest rate cuts. The insurance industry is poised to benefit from GST adjustments and increasing penetration rates.

Emkay Investment Managers continues to hold stakes in select Public Sector Undertakings (PSUs), especially in the power and finance sectors, citing companies like Container Corporation of India, Power Grid Corporation of India, Power Finance Corporation, and the largest mortgage housing finance company. Sonthalia believes PSU valuations are becoming more reasonable, and the valuation gap between PSUs and private sector companies is narrowing.

While acknowledging the volatility of oil marketing companies, he finds them attractive due to their price-to-book ratios and dividend yields.

However, Sonthalia expressed a cautious stance on the current wave of Initial Public Offerings (IPOs). He noted that while many are good companies, paying 200–300 times earnings for only 20–25% growth is not justifiable.

Impact on Indian Stock Market: Moderate to High. The outlook on earnings growth, sector performance (BFSI, Insurance, PSUs), and consumption trends can significantly influence investor sentiment and drive stock prices in these sectors. The cautious stance on IPOs might lead to a recalibration of valuations for new listings. Rating: 8/10.

Difficult Terms: EPS (Earnings Per Share): A company's profit divided by the number of outstanding shares, indicating profitability per share. BFSI: An acronym for Banking, Financial Services, and Insurance. PSUs (Public Sector Undertakings): Companies that are owned and managed by the government. Premiumisation: The trend where consumers increasingly choose higher-priced, higher-quality, or more feature-rich versions of products or services. Price-to-Book (P/B) Ratio: A valuation metric that compares a company's market capitalization to its book value. A lower P/B ratio might indicate an undervalued stock. Dividend Yield: The ratio of a company's annual dividend per share to its current share price, expressed as a percentage. It shows how much income an investor can expect from dividends relative to the stock's price. IPOs (Initial Public Offerings): The process by which a private company becomes public by selling shares to investors for the first time.