By Sunil Subramaniam, Financial Sector Veteran & Ex-MD of Sundaram Mutual Fund, Chennai
As a summer of geopolitical heat and “Trump-induced” volatility looms, market it seems has not yet found its bottom
A. Crucial Earnings Season:
DIIs are keeping their gunpowder ready for the earnings season as waning net positive DII flows—Rs 2,400 crore on Friday and just Rs 1,000 crore on Thursday—are evidence that domestic institutions are not yet willing to step in decisively.
The earnings season, is unusually consequential. The March quarter will see companies absorb the oil price shock to varying degrees, but that is already in the consensus estimates of analysts. What matters more is the guidance — specifically, what FY26-27 Nifty, mid and small cap EPS trajectories will look like, and whether forward PE multiples, which are currently below 5-10 year averages, can hold once earnings estimates are downgraded. For eg, Earlier, there was a 14% expectation for the Nifty EPS; Whether it comes down to 12% or 11% will shape how the market re-rates from here.
B. Key Sector Watch
B1. Consumption: The Summer Test
A key sector to watch is consumer discretionary which has strong seasonality. Summer demand data, for consumer durables, will be the real signal, not the current quarter’s earnings, which will be anyway be weighed down by elevated input costs from oil, steel, and other commodities.
If that gives a positive, then the future quarters’ earnings are likely to look good.
Layered on top of that is the monsoon. How rainfall develops will determine rural demand, with direct implications for FMCG and allied sectors.
B2. Banking: NIMs in the Crossfire
Banks present a more nuanced picture. Interest rates show no sign of being cut anytime soon — in the US or India — but credit growth remains robust. The critical question is whether that credit momentum can be sustained.
If summer consumer demand holds up, and people are willing to take on higher EMIs to buy durables even in a higher-rate environment, partly cushioned by the GST cut, then banks can defend their pricing power and protect net interest margins. But if consumers pull back and retail lending slows, the pressure on NIMs could intensify, with deposit costs remaining firm or rising modestly given the inflationary backdrop.
Private sector banks and NBFCs, are especially sensitive to this dynamic, given their heavy reliance on the retail lending segment.
B3. Capital Goods: Watching for Private Capex Surprises
This earnings season stock market analysts will be watching for any signal that companies are beginning to talk about capacity expansion.
If companies during their earnings call are talking about expanding capacities, then that is good news. With capital goods stocks already under pressure, any such signal could make the current moment an attractive entry point for investors willing to look through near-term weakness.
C. Domestic Equity Investors are they proving to be trigger happy?
Retail investors, meanwhile, jumped back in on Thursday and Friday, as midcaps and smallcaps outperformed largecaps through the week. SIP inflows stood at Rs 32,000 crore, with overall mutual fund inflows at Rs 40,000 crore. But Retail may be overreacting, as Trump-induced volatility will remain a dark cloud in the near term.
For investors who are sitting on cash, this is an accumulation phase, not a trading phase. The war-driven oil spike, is time-limited. Once it resolves, oil may not return to $65 but could settle in the $80-85 range, a level the Indian economy can absorb, albeit at a slightly lower growth rate.
When the dust settles, India will continue to be a long-term attractive market.
But, investors must avoid the temptation to reposition portfolios amid the uncertainty. For eg, investors should learn from the counterintuitive price action seen in gold and banking, both sectors widely expected to be war-insulated, yet both have taken hits. Investors should continue to hold a diversified portfolio close to what they had before the conflict escalated.
For those investors who are already fully deployed with the advice is simpler still – Just stay quiet. Do not engage in panic-related selling.
Investors, should remain in a systematic accumulation phase, staying patient, avoiding panic selling.
About the author:
Sunil Subramaniam, Former Managing Director and CEO of Sundaram Mutual Fund, is among the most seasoned voices in India’s investment management industry, with a career spanning over four decades across banking, insurance, and asset management. Currently, he advises several investment firms and financial institutions on macroeconomic trends, market strategy and asset allocation among others. He also runs a YouTube channel, ‘Sense and Simplicity by Sunil’, where he breaks down complex market trends, macroeconomic developments, and investment strategies into accessible insights for retail investors.
(Disclaimer: The views expressed are those of the author. Please consult your financial advisor before investing in stocks.)
