Expert view: Dhiraj Relli, MD and CEO of HDFC Securities, believes a prolonged US-Iran conflict may lead to cuts in earnings growth estimates, but FY27 earnings growth may be better than FY26. He also expects the second half of calendar year 2026 to be better, with improved sentiment, prolonged consolidation, and reasonable valuation multiples. In an interview with Mint, Relli shares his views on the sectors he is overweight and underweight in, as well as his insights on how investors should pursue global investing. Edited excerpts:
Nifty’s performance in the first half of CY26 has been disappointing. What is the outlook for the second half?
Over the past 24 months, the Indian stock market has experienced a phase of heightened volatility, prolonged consolidation, and time-wise correction, driven by uncertainties related to the US trade tariff, evolving domestic policy dynamics, energy price shocks, and supply disruptions stemming from the West Asia conflict.
Despite an improving macroeconomic backdrop, the market remains fundamentally bottom-up, with growth-oriented themes and companies scaling up expected to be the key beneficiaries.
Even amongst the sectors, there are stock-specific opportunities. By and large, valuations have corrected over the last 12 months by 20-30% for most pockets. We reckon that strong earnings growth will remain key, along with stability in geopolitical situations.
A prolonged conflict may lead to cuts in earnings growth estimates, but we do expect FY27 earnings growth to be better than FY26. We expect the second half of calendar year 2026 (H2CY26) to be better on improving sentiments, prolonged consolidation and reasonable valuation multiples.
Where are opportunities in the domestic market? Are there emerging sectors that look attractive to you?
The quarter began with heightened volatility amid the West Asia conflict, marked by elevated energy prices, weakening macro indicators, and significant foreign capital outflows that pressured the currency and forex reserves.
However, conditions improved following the de-escalation of the US/Israel and Iran war, with crude prices and inflationary pressures easing, the currency stabilising, and FII selling moderating, resulting in a more stable macro environment.
Equity markets also recovered from their lows as sentiment improved. However, again, the Iran-US conflict started, and that could impact overall global markets. Given a lot of uncertainties, there could be a delay in earnings recovery (street expectation of nearly 15% CAGR growth in FY27 and FY28).
West Asia conflict and delayed monsoon could impact earnings in the first half of the financial year 2026-27 (H1FY27). The actual end of this war/issue would ensure global certainty, along with better earnings and improving Indian macros, to augur well for Indian markets.
We remain overweight on diversified financials and private banks, manufacturing and industrials, defence, pharmaceuticals, cement and consumer discretionary sectors. We are underweight on consumer staples.
Pharma
For the US piece, FY27 will be muted, with companies like Dr Reddy’s, Zydus Lifesciences, Natco and Cipla likely to be impacted from gRevlimid genericization, but the base business is dependent on company-specific launches; given lower shortages, US price erosion is not expected to come down further.
We note that almost all the companies have very strong B/S with huge cash reserves, and therefore, M&A opportunities also exist (Sun Pharma – gigantic acquisition of Organon).
Domestic piece of business continues to grow at a healthy pace for large players. Indian pharma companies have been investing heavily in R&D, and that should drive US business growth on the back of niche launches.
Over the last 10-15 years, Indian pharma players built their global reputation on a simple but powerful proposition of producing and exporting high-quality generic medicines at unmatched scale and cost efficiency.
Consumer
After a prolonged phase of uneven demand, the Indian consumer sector is showing clearer signs of normalisation, but the recovery remains patchy across segments and channels.
Urban demand is supported by premiumisation, stronger modern trade and e-commerce traction, and better performance in metro markets, while rural demand has improved only gradually and remains sensitive to affordability and high-base effects.
Going into FY27, the main support pillars are likely to be a change in business mix and continued gains in modern trade and e-commerce.
At the same time, commodity volatility, especially in crude-linked inputs, packaging, and select agri commodities, remains the key risk to both margin expansion and volume recovery.
Although valuation multiples remain on the higher side, the sector offers incredibly stable earnings and serves as a safe haven during economic turbulence.
Defence
Ongoing geopolitical tensions have reshaped global supply chains and exposed vulnerabilities in military procurement, reflecting a rapid expansion in indigenous manufacturing across aerospace, missiles, naval systems, armoured platforms, electronics and ammunition.
Defence and aerospace companies continue to report strong results, and given their multi-year revenue visibility, we remain positive on the sector.
Even for most players, large export opportunities would further improve prospects.
BFSI/Financials
The BFSI sector delivered performance that was largely better than expected, supported by system credit growth of around 15%, which continued to outpace deposit growth.
PSBs have benefited from relatively better balance-sheet positioning, while some private banks continue to manage tighter deposit accretion.
Asset quality continued to improve, with limited fresh slippages and broadly stable stress indicators across the formal banking system.
Unsecured loans and microfinance portfolios still faced elevated credit costs, but improving collection efficiency suggests a gradual recovery in the coming quarters.
Looking ahead, credit demand is expected to remain healthy in FY27. NIM pressure is likely to ease gradually, especially as repo rate cuts appear unlikely in the near term.
How do you see the macro setup for India? Crude oil prices face volatility, and the El Niño risk looms. What could it mean for the Indian economy and stock market sentiment?
India’s core economic engine is running smoothly, powered by everyday local spending, steady government infrastructure pushes, and a massive wave of local savings flowing into mutual funds.
This domestic cushion is doing a great job of absorbing global shocks, even as foreign investors pull money out to chase better yields elsewhere and a weaker rupee eats into their dollar returns.
The real challenges right now are coming from energy and weather. Wild swings in oil prices due to global conflicts threaten corporate profits and stretch the national budget, while El Niño-driven monsoon delays could spike food prices and squeeze rural pockets.
Consumer staples and pharma, sticking with solid banks riding the local credit wave, and picking energy companies that can easily pass rising costs down the line.
Market sentiment for the Indian stock market is optimistic, with high long-term confidence in domestic growth tempered by short-term anxiety.
While structural factors remain strong, market participants are actively managing risk to protect capital against external macro factors like oil prices and weather volatility.
Do you think it is time investors should start pursuing global investing? Are diversified portfolios better positioned to participate in global growth opportunities?
Indian equities should continue to remain the core of most investors’ portfolios, given the country’s strong long-term structural growth story, improving corporate earnings trajectory, and deepening capital markets.
At the same time, as investors become more sophisticated and their portfolios grow, it is worthwhile to consider complementing domestic exposure with selective global investments.
Global investing is not about choosing between India and the rest of the world; it is about broadening the opportunity set. Different markets and sectors tend to outperform at different points in the economic cycle.
For instance, investors can gain access to global technology leaders, healthcare innovators, or sectors that may have limited representation in the Indian market.
This diversification can help reduce concentration risk while allowing investors to participate in long-term global growth themes.
A well-diversified portfolio that combines domestic and international exposure is often better positioned to navigate varying market cycles and capture opportunities across geographies.
The objective should be to enhance portfolio resilience while keeping India as the foundational allocation.
How should retail investors build exposure to global equities?
Retail investors should approach global investing gradually and with a long-term mindset.
The first step is to determine an appropriate allocation based on their financial goals, risk appetite, and existing domestic exposure.
For most investors, global equities should complement, rather than replace, their Indian equity investments.
Investors can access global markets through direct investment avenues, such as platforms like ours that facilitate investments in overseas equities and ETFs or via international mutual funds or feeder funds, depending on regulatory availability and suitability.
Diversified products can be a good starting point for first-time global investors, as they provide exposure across multiple companies and sectors.
It is also important to understand that global investing involves additional considerations such as currency movements, taxation, and varying market cycles.
As with domestic investing, diversification, disciplined investing, and periodic portfolio reviews remain the key drivers of long-term wealth creation.
Is optimism over AI overblown? Do you see the possibility of an anti-AI play which can help the Indian stock market?
The global equity landscape is currently navigating a period of heightened scrutiny regarding artificial intelligence valuations, positioning the Indian stock market as a compelling structural hedge against global tech fatigue.
While mega-cap global indices grapple with concentration risks, heavy capital expenditure, and lagging monetisation models, India offers international investors a tangible alternative.
This “anti-AI” investment thesis allows global fund managers to rotate capital out of digital speculative bets and reallocate it toward physical economic drivers.
By pivoting to India, capital aligns with robust domestic infrastructure development, an expanding manufacturing footprint, and deep credit markets, all of which operate largely independent of global technology trends.
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Disclaimer: This article is for educational purposes only and does not constitute investment advice. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
