Expert view: Anil Rego, the founder and fund manager at Right Horizons PMS, believes the Nifty 50 EPS may grow at a CAGR of nearly 13 per cent over FY25–FY27, making the case for moderate, earnings-driven gains over the medium term. In an interview with Mint, Rego shared his expectations for Q1 earnings and said he is positive about banking, defence, and consumer discretionary sectors, among others, at this juncture. Edited excerpts:
What is your view on the current market structure? Will we see single-digit gains this year?
Following a sluggish start, Indian markets witnessed a notable recovery in June, spurred by a combination of supportive global developments and decisive domestic policy actions.
The Reserve Bank of India’s 50 bps rate cut and a 100 bps reduction in the CRR, alongside a 9 per cent monsoon surplus and easing oil prices, have improved liquidity and sentiment.
This led to a sharp uptick in rate-sensitive sectors like financials, real estate, and autos, with broader markets outperforming large caps.
Globally, while risk sentiment has improved post-ceasefire in the Middle East, geopolitical fragility, policy uncertainty in the US, and tariff tensions remain key overhangs.
Despite these risks, corporate earnings remain resilient, and consensus expects Nifty EPS to grow at a CAGR of nearly 13 per cent over FY25–FY27.
This supports the case for moderate, earnings-driven gains over the medium term.
How serious is the US tariff risk for the Indian stock market? Can it cause a protracted economic pain for India?
The US tariff risk is a growing concern for Indian markets, especially after India announced retaliatory tariffs on US steel and aluminium at the WTO.
While the risk remains sector-specific for now, impacting exports like IT, pharma, and metals, it does not yet pose a threat of prolonged economic pain due to India’s strong domestic fundamentals.
However, if trade tensions escalate further, it could hurt earnings in export-oriented sectors and trigger FPI outflows.
What are your expectations from the Q1 earnings? Is the worst behind us?
The Q1FY26 earnings season is expected to show early signs of recovery, but it may not mark a broad-based turnaround just yet.
While some sectors are poised to outperform, others are likely to face lingering challenges, suggesting that the worst may be behind us selectively, not uniformly.
Banking sector: Banks are expected to report muted earnings growth due to margin compression from the RBI’s recent repo rate cuts, seasonally weak fee income, and elevated credit costs, particularly in unsecured and agri loan segments.
However, the outlook improves from the second half of the financial year (H2FY26), with expectations of improved loan growth, easing deposit costs, and declining slippages.
IT sector: The IT sector is likely to report mixed revenue growth. Tier-1 IT companies may post flat to marginally negative constant-currency (CC) growth, with only a few companies expected to grow sequentially.
Mid-tier firms are expected to do relatively better, driven by strength in BFSI, healthcare, and GenAI-led demand. The sector’s deal pipeline remains healthy, and margin guidance is stable, indicating resilience despite macro headwinds.
Which sectors are you positive about at this juncture?
The market outlook supports a selective sectoral approach, focusing on areas with strong earnings visibility, structural tailwinds, and valuation comfort.
Financials (banks & NBFCs)
Banks remain structurally positive, with asset quality stabilising and credit demand holding up. Margins may have peaked, but lower funding costs from RBI rate cuts should aid profitability from H2FY26.
NBFCs, especially in retail lending, gold loans, and vehicle finance, are expected to benefit from improved liquidity and demand recovery. Funding diversification and strong disbursement momentum support their outlook.
Capital goods and infrastructure
Public and private capex revival, strong order books, and government focus on infrastructure make this sector attractive.
Execution momentum is visible across electrification, construction equipment, and engineering segments, backed by rising investments and policy incentives.
Defence
A structural growth story driven by indigenous procurement (92 per cent of contracts awarded to Indian firms), record exports, and rising capex allocation.
Private players are gaining traction alongside DPSUs, supported by a ₹40,000 crore emergency procurement push.
Healthcare and hospitals
Hospitals are showing robust growth in profitability, ARPOB, and occupancy rates. Expansion into tier-2 cities and the medical tourism potential offer multi-year tailwinds. Diagnostics and digital health initiatives continue to support earnings resilience.
Urban consumption remains healthy, aided by premiumisation and easing input costs. Value fashion, QSRs, electronics, and jewellery segments are doing well.
Tax relief and rural revival could further aid demand in H2FY26.
Electronics manufacturing services (EMS)
EMS firms are benefitting from PLI schemes, China+1 diversification, and rising demand for domestic electronics.
Strong capex, growing order books, and operating leverage suggest continued double-digit growth.
Wealth management
The Indian wealth management sector is at a pivotal inflection point, driven by the rapid rise of HNIs and ultra-HNIs.
Financial assets held by these segments are projected to grow from $1.2 trillion in 2023 to $2.2 trillion by 2028, reflecting strong wealth creation and rising financialization of assets.
Yet, only 15 per cent of India’s financial wealth is professionally managed, compared to nearly 75 per cent in developed markets.
This vast gap presents a structural opportunity for PMS, AIFs, and advisory platforms to expand.
Do you see value in the IT sector? What do the early trends of the earnings indicate?
There appears to be selective value emerging in the IT sector, particularly among mid-tier companies, although the broader outlook remains cautious.
Early Q1FY26 earnings trends suggest that:
Tier-1 IT firms are expected to post muted revenue growth in constant currency terms, with flat to low-single-digit QoQ changes. Deal flow remains intact, but revenue conversion is lagging due to delayed decision-making by clients in the US and Europe.
Mid-cap IT players, however, are showing signs of resilience. They are benefitting from niche capabilities in areas like healthcare, engineering services, and AI-linked digital services.
Early previews indicate better execution and margin improvement from this segment.
From a valuation standpoint, the sector has derated and is trading closer to its long-term average.
While high-growth tailwinds of the pandemic years have faded, the sector offers reasonable entry points for long-term investors willing to ride out near-term demand uncertainty.
Cost efficiency, GenAI adoption, and vendor consolidation deals could drive outperformance for well-positioned firms.
Do you think the current market valuation is unsustainable? What should be our equity investment strategy amid prevailing uncertainty?
As of June 2025, key indices like the Sensex are trading at nearly 24.7 times trailing PE and nearly 3.7 times P/B, which are above their 10-year averages.
This elevated valuation comes after a sharp June rally driven by the RBI’s front-loaded rate cuts, falling crude prices, and foreign inflows.
In this context, a prudent equity investment strategy would involve:
Bottom-up stock selection: Focus on fundamentally strong companies with stable earnings visibility, robust cash flows, and sectoral tailwinds, particularly in financials, manufacturing, healthcare, and select midcap IT.
Maintain valuation discipline: Avoid chasing momentum in overvalued stocks or sectors. Seek opportunities where growth is not fully priced in, especially in sectors benefiting from reforms, PLI, or rising domestic demand.
Diversify across market caps: While large caps offer safety in uncertain times, select mid and small caps with solid fundamentals and reasonable valuations can provide alpha as the cycle broadens.
Use volatility to build exposure: Geopolitical risks, global rate uncertainty, and election-driven policies may trigger short-term corrections. These should be used to accumulate quality names rather than exiting in panic.
Read all market-related news here
Read more stories by Nishant Kumar
Disclaimer: This story is for educational purposes only. 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.
