The Indian stock market is hovering near record high levels as the Q2 earnings season signalled a recovery. Against this backdrop, Dr V K Vijayakumar, Chief Investment Strategist, Geojit Investments, told Mint that next year will be better for the Indian stock market than 2025 as FY26 earnings could grow in the 15-16% range. However, he is quick to warn that an AI bubble burst can result in a US market meltdown, sparing no market in its wake. Edited excerpts:
The Q2 earnings season concluded. What are some of your biggest takeaways?
The Q2 results signal earnings recovery. The recovery is likely to be sustained since policies and the macro construct are supportive. H2 will certainly be better than H1. Cement and telecom will do well, while Autos can sustain the growth momentum. Financials are also attractive from the valuation perspective.
Indian IT stocks are rising. Is it because they are being viewed as anti-AI stock trades?
IT stocks have staged a recovery, but the valuations are not compelling. Within this sector, the mid-caps will do better. The anti-AI stock trade is likely to be in domestic consumption themes. Weakening of the AI trade will certainly be favourable for India.
How significant could the impact of US stock market meltdown be on India?
If there is an AI bubble burst and a consequent meltdown in the US, no market will be spared. India, too, will be impacted. The global exposure to US equities is dangerously high and, therefore, a meltdown will have global consequences. The wealth destruction in the event of a meltdown can be massive, triggering a global recession. No market will be spared in such a scenario. However, if a bubble burst is spared and the correction is modest, the global impact will be mild. In such a scenario of modest correction, India will benefit. FIIs are likely to turn buyers in India.
What’s your take on the IPO euphoria? We are seeing some of the tech companies getting crazy valuations and investor interest. Does it warrant caution?
Some of the IPOs are coming with crazy, unjustifiable valuations. Indeed, there is froth and irrational exuberance in the IPO market. Investors must be selective while applying for IPOs. An application should be made only if the valuations are reasonable. Many IPOs done at frothy valuations are now trading at a discount to the issue price. For long-term investors, there are better opportunities in the secondary market.
What’s your outlook for next year for Indian stock market?
Next year will be better than 2025. FY27 has the potential to deliver 15-16% earnings growth. The market will soon start discounting that.
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.
