Expert view: Neeraj Chadawar, the head of fundamental and quantitative research at Axis Securities, forecasts Nifty to deliver quarterly revenue, EBITDA and PAT growth of 3.9 per cent, 3.9 per cent and 3 per cent YoY, respectively, in Q1FY26. Talking to Mint, Chadawar emphasised that markets will largely be earnings-driven in FY26, with a meaningful earnings uptick in the second half of the year. He also shared his views on sectors he is positive about, the impact of the trade war and his Nifty target. Here are edited excerpts of the interview:
What are your expectations from Q1 earnings? How do you expect it to impact market sentiment?
The Q1FY26 earnings season has been marked with interesting events such as (i)geopolitical tension, (ii) volatility in crude prices, (iii) interest rate cuts, (iv) unseasonal rainfall, (v) supply chain disruptions, and (vi) improving liquidity.
These developments indicate that the Q1FY26 earnings season is expected to exhibit a mix trend, similar to the patterns observed in previous quarters, though some breather is expected due to sequential improvement in a few high-frequency indicators.
However, the broader consumption demand could still take one or two quarters to get back on track.
Most of the earnings-related concerns are now behind us. While the intensity of downgrades is likely to slow down from here onwards, the market is one or two quarters away from the potential upgrades.
Most of the meaningful actions are likely to be seen in the second half of the financial year (H2FY26), linked with the potential uptick in the economic momentum.
Overall, earnings improvement is expected in certain sectors, such as telecom, financials, materials, oil and gas, and industrials, while auto OEM (original equipment manufacturer), utilities, and metals will continue to face some pressure.
Based on our consensus estimates, we forecast Nifty to deliver quarterly revenue, EBITDA and PAT growth of 3.9 per cent, 3.9 per cent and 3 per cent YoY, respectively. Moreover, excluding Tata Motors, Nifty PAT is expected to grow by 4.3 per cent YoY.
How can investors navigate the current trade war uncertainty? Should investors brace for only moderate returns in 2025?
The Indian economy is well-positioned. Despite external risks, India’s domestic growth trajectory remains intact, with key macroeconomic factors supporting a stronger FY26 compared to FY25.
Both the RBI and the government are providing support to the Indian economy through pro-growth policy measures.
While macroeconomic risk will continue to drive the market direction for another couple of months, the majority of the negatives related to trade uncertainty are behind us.
The ongoing earnings season is critical for the market direction going forward, and the management commentaries and guidance will be crucial.
We expect near-term consolidation in the market, with breadth likely remaining narrow in the immediate term.
If trade-related uncertainty eases further and no major negative surprises in Q1FY26 earnings emerge, the market is likely to make a new high in the upcoming earnings season.
The trajectory for FY26 would largely be earnings driven, with a meaningful earnings uptick in H2FY26.
So, on an immediate basis, it will be a stock pickers market, and an uptick in economic momentum could lead to a broad-based recovery in the second half.
The Indian economy can grow above 6% in FY26, but will it be enough to attract foreign funds?
FY26 is expected to present a more constructive environment for foreign flows compared to FY25, driven by improving domestic fundamentals in terms of earnings expectations and proactive policy measures.
Most of the earnings-related concerns are factored in FY25, and the FY26 earnings prospects have improved significantly.
The intensity of downgrades is likely to slow down further from here onwards, driven by the RBI’s liquidity support, including a CRR cut, the interest rate cut of 100 bps, supporting credit growth recovery, corporate earnings in FY26, and a consumption-oriented Union Budget.
That said, global macro risks continue to warrant close attention.
While India remains relatively better placed among emerging markets, foreign investors are likely to take a calibrated approach, balancing optimism around India’s structural story with caution around global headwinds.
Do you still find value in the domestic consumption theme?
FY25 was a challenging year for the domestic economy, led by a slowdown in government capex, higher inflation and interest rates, slower credit growth, and moderation in urban consumption.
These factors impacted the overall domestic consumption, leading to earnings moderation. A series of measures undertaken by the government and the RBI since December 2024 indicate a likely pick-up in economic activities in H2FY26.
The overall consumption theme has not delivered a meaningful return in the last couple of years, and the chances to bounce back from H2FY26 onwards are high.
In this regard, the progress of a well-distributed monsoon is key, and the upcoming festival season (Ganesh Chaturthi) will set the tone for future consumption trends.
What should be our strategy for export-oriented sectors? Should we completely avoid them?
Currently, all the major export-oriented sectors are in a wait-and-watch mode.
We continue to maintain our underweight stance on the IT sector. We foresee a slowdown in overall IT spending in the US market, and a probable delay in discretionary spending may pose a downgrade risk in the upcoming quarters.
Hence, the ongoing earnings season is crucial, and we continue to monitor management commentaries and the guidance for the remaining FY26.
While macroeconomic uncertainty has reduced significantly in the last three months, we are not out of the woods yet.
Hence, meaningful developments related to the global economy’s uptick need to be keenly watched as they are key trigger points for the export demand uptick. The market continues to remain watchful for these developments.
What sectors can generate alpha in the next one to two years?
In the current environment, our focus remains on growth at a reasonable price, ‘quality’ stocks, monopolies, market leaders in their respective domains, and domestically-focused sectors and stocks.
These, we believe, may outperform the market in the near term.
Based on the current developments, we (i) continue to like and overweight BFSI, telecom, consumption, hospitals, and interest-rate proxies, (ii) continue to maintain a positive view in selected retail consumption and FMCG play based on the recovery expectations in FY26, and (iii) prefer certain capex-oriented plays that look attractive at this point in light of the recent price correction as well as reasonable growth visibility in the domestic market in FY26.
What is your take on the current valuation of the Indian stock market? Do you find it sustainable?
Based on the current development, we present three scenarios for the Nifty 50 by March 2026:
(i) Bull case: Nifty target of 27,600 by March 2026, valued at 21 times, assuming a Goldilocks scenario and private capex boost.
(ii) Base case: Nifty target of 26,300 by March 2026, valued at 20 times on March 2027 earnings. (Recently, we upgraded our base case multiple to 20 times from 19 times earlier to factor in the favourable addition of high PE stocks in the index, in which Jio Financial and Eternal have replaced Britannia and BPCL.)
(iii) Bear case: Nifty target of 22,300 by March 2026, valued at 17 times, assuming policy shifts, inflation challenges, and recession risks.
Most of the positives are already in price at the index level. Hence, the market performance will largely be driven by earnings growth going forward.
On an immediate basis, it will be a stock pickers market, where bottom-up stock picking with a focus on quality, market share, margins, and earnings growth will play a meaningful role in alpha generation.
Once we progress towards FY26, more sectors will join the rally based on the revival expectation of domestic economic momentum.
Considering prevailing uncertainties, what should be our equity investment strategy at this juncture?
We suggest a well-diversified approach with the right combination of defensive, interest rate-sensitive and cyclical sectors.
In the current environment, we favour three themes: quality, growth at a reasonable price, and the earnings recovery theme to generate satisfactory returns in the next 12-18 months.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, 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.
