*In this edition of ETMarkets Smart Talk, we speak with Darshan Engineer, Fund Manager – PMS at Sundaram Alternate Assets, to decode the evolving market landscape as earnings season progresses.

With more than half of Nifty50 companies having reported their numbers, early trends suggest that the earnings cycle may be approaching its trough, with expectations of a gradual recovery in H2FY26 and a stronger pickup into FY27–28.

Speaking to Kshitij Anand of ETMarkets, Engineer discussed the impact of global rate moves, the dynamics shaping India’s trade negotiations, sector-wise performance, and where he sees the most compelling investment opportunities at this stage of the cycle. Edited Excerpts –

Q) Thanks for taking the time out. We have seen fresh momentum in markets, which pushed benchmark indices higher last week largely on trade deal hopes. How are you reading all this?

A) Indian benchmark indices have risen 4.3% over the past month, outperforming emerging market peers by 20 basis points, as domestic institutions and retail investors continued to increase their exposure.

India was the first country to initiate trade negotiations with the US, but discussions have dragged on for months, with key sticking points around access for American agricultural and dairy products.

Let’s set the context first: US represents roughly 18% of India’s total goods exports and its strategically important as India has a trade surplus in excess of US$40bn with the US. The impact of higher trade tariffs have started reflecting in the data as India’s exports to the US have fallen by 38% in May-Sep period.

These existing tariffs are weighing heavily on employment intensive sectors such as textiles, gems and jewellery, chemicals, agricultural products and machinery, which together account for nearly 60% of India’s exports to the US. Between May and September, shipments from these sectors fell by 33%.

Some of this lost ground has already been captured by competitors like Thailand and Vietnam, particularly in gems and jewellery. A prolonged delay in concluding the talks risks further erosion of India’s competitiveness.

Two questions dominate the debate: Can India divert exports from the US to other large markets such as China and Russia? And does India possess a strong bargaining chip, akin to China’s leverage in rare earth minerals? The answer to both, at least for now, appears to be a unanimous ‘No’.

India’s export profile spanning energy, lower end automobiles, pharmaceuticals and smartphones does not align with the import demand from alternate markets like China and Russia, which is concentrated in high end electrical equipment, advanced automobiles and nuclear technology. This limits the scope for meaningful substitution. On the other hand, a sharp drop in exports from employment-intensive sectors may spill over to other sectors like financials (rising NPAs) and consumption (unemployment).

Our View: While India’s refusal to rush into a deal under deadline pressure can be viewed as a ‘brave maverick’ stance, but further delays could result in permanent market share losses to more competitive exporters such as Vietnam, China and Mexico.

Going forward, India must focus on enhancing competitiveness in key sectors and building strategic advantages in areas where it can command leverage (case in point: rare earth metals in China). Such an approach would not only accelerate the trade negotiations but also help avoid similar policy deadlocks in the future. ** Q) Precious metals, which broke all records, cooled off a bit in the past few weeks. Do you see further weakness, or is it just a pause?** A) The surge in precious metals prices over the past year has been led by three key drivers: aggressive central bank buying, safe haven demand amid geopolitical uncertainty and expectations of lower US interest rates. Each of these factors continues to shape the outlook for precious metals, so lets have a look at each factor:

Aggressive Central Bank purchases: Net purchases by central banks, particularly by emerging market central banks like China has been at its strongest in years, providing a structural floor for gold prices. Reserve managers will continue to diversify and buy gold as prices ease.

Geopolitical risk premium: While regional conflicts and trade frictions remain unresolved, tensions have eased somewhat in the past three months, sustaining the safe haven demand for gold and silver. We have not seen any further escalations in regional conflicts, but it remains persistent, keeping demand for precious metals intact.

US monetary policy and dollar dynamics: Recent rate cuts by Fed were in-line expectations and has paved way for a looser global liquidity environment. Empirical data suggests that lower yields are supportive for gold and silver prices.

Also, a fall in US interest rates typically results in weaker dollar index. While the recent strengthening of dollar contradicts this, we believe a sustained dovish stance by US Fed will result in resumption of a rally in gold and silver.

Our View: We believe the recent cooling in precious metals is best seen as a ‘Pause for Breath’ after a record breaking run driven by profit-taking, but volatility may persist as speculative positions are trimmed. However, medium and long term factors create a structural case as central bank purchases continue as they look to diversify their reserves outside of US treasuries, easing monetary policy by US and continued geopolitical uncertainty. ** Q) The US Fed seems to be on an easing spree with the recent 25 bps rate cut. How would that impact RBI policy back home and equity markets?** A) The US Federal Reserve has cut interest rates by 25 basis points, while lowering the target range to 3.75-4%. This is the second time the Fed has cut rates this year, having already issued a 25 bps cut in September.

However, more important that the rate cut what stood out was Fed Chair Jerome Powell’s comments on possibility of December rate cut, that its not a ‘foregone conclusion’ the reality is ‘far from it’.

While the rate cut was in line with expectations, easing by Fed gives RBI more room to consider rate cuts, without the fear of capital outflows. However, in our view, RBI is likely to be more measured in its approach and will be guided by domestic inflation, which continues to remains low, rather than US rate moves.

Also, an appreciation in INR (vs USD) and lower global yields are likely to reduce imported inflation and lower borrowing costs, giving additional reasons to RBI to consider a rate cut in its next monetary policy meet in December.

For equity markets, we believe a rebalance towards cyclicals vs defensives will continue to remain in play. We expect the risk on capital will continue to fuel a rally in cyclicals like financials, industrials and consumer discretionary.

An added kicker by govt of India in form of GST rate cuts and income tax cuts is likely to support healthy growth in these sectors. On the other hand, IT sector may see some impact on margins if dollar weakens, but may continue to benefit from higher IT spends as growth is US stabilizes.

We also expect lower rates to result in softening of imported commodities, easing cost pressure for manufacturing companies.

Our View: The US Fed’s 25 bps rate cut has injected fresh liquidity into global markets, raising the odds of risk on capital flowing into emerging economies. Yet, the Reserve Bank of India is unlikely to be swayed by global cues alone and will keep its eyes firmly fixed on domestic inflation before considering a rate cut in December.

We think an equity portfolio positioned towards cyclicals is likely to benefit the most in this scenario, as easing imported raw material costs and borrowing rates could drive an earnings upgrade. Valuations vary significantly across sectors as industrials and consumer discretionary sectors trade at elevated multiples, while financials continue to hover in-line with historical averages.

Q) Most of the Nifty50 companies have come out with their results. How are you reading into numbers, management commentary, and the revival of earnings? A) As of 31st Oct 2025, 27 companies out of Nifty 50, implying more than 50%, have announced their Q2FY26 results. They form ~ 65% of the estimated PAT for Nifty, ~ 42% of India’s market capitalization, and ~ 70% of the total weight in Nifty. Net profit of these companies cumulatively grew ~ 5% YoY in Q2FY26.

Positive contribution has come from the likes of HDFC Bank, Reliance Industries, TCS, JSW Steel, and Infosys while Coal India, Axis Bank, Eternal, HUL, and Kotak Mahindra Bank have dragged Nifty earnings lower. 7 companies within Nifty reported lower-than-expected profits, while 5 recorded a beat, and 15 registered in-line results.

At a broader level, ~ 214 Nifty 500 companies reported results till 31st Oct 2025 and cumulative net profit for this group has grown better at ~ 15% YoY.

Overall earnings growth was driven by Oil and Gas in which oil marketing companies saw a sharp jump in YoY profit growth on a low base. Some other sectors such as Technology also had a reasonable quarter with ~ 8% YoY growth in PAT. Other sectors that did well during the quarter include Cement, Capital Goods, and Metals. In some of them, growth has been strong due to a muted low base.

Our view: Clearly, GST rate cut fed into a strong festive season demand across consumer discretionary segments and has been the biggest booster to near-term earnings growth in Q2 for some sectors like Consumer Durables and Auto.

This has had a positive rub-off effect on other sectors like banks and NBFCs as consumers nowadays use credit to fund these high-ticket purchases. In addition, Private banks delivered better-than-expected 2QFY26 results, supported by better NIM performance and a healthy pickup in credit growth, while PSU banks also reported improved outcomes.

NBFCs had a weak Q1FY26 marked by deterioration in asset quality and concerns on growth. Fortunately, many NBFCs have come out with improvement in asset quality sequentially barring a few.

They are also talking of faster growth in H2FY26 vs H1FY26 as asset quality trends stabilise and collection efficiencies across the board have improved. However, GST rate cut transition, and an extended monsoon period dragged growth for Consumer Staples companies who don’t benefit much from the cuts.

IT services companies came out with better-than-expected results on already beaten-down expectations in Q2FY26, with median revenue growing 1.9% QoQ CC. Barring a few, most companies managed to beat or meet estimates.

Management commentaries from IT companies indicate willingness of clients to spend on critical projects despite the uncertainty and increased use of AI in projects.

Like it always happens every financial year, as the year progresses, earnings cut happen during each quarter for the financial year as a whole. However, the pace of earnings cuts is now moderating.

With several measures undertaken by government and RBI to boost economic growth, this should improve the trajectory of corporate earnings in coming years.

Thus, we feel that the earnings cycle is near its bottom, with growth rate expected to improve towards double digits in H2FY26 vs H1FY26 and continuing into FY27-28.

Overall, we think that earnings season has been in-line with expectations, helping Nifty and broader indices close to their 52-week highs. Consequently, October 2025 was a strong month for the markets and the recent rally has been broad based.

Valuations of Nifty/Sensex are reasonable at ~ 21x P/E on 1-year forward basis. With improving earnings growth, it sets the stage for a continuation of the positive momentum in the markets, after being rangebound and lackluster for the last 1-1.5 years. ** Q) Also, do you see any red flags that investors should track or watch out for in the next few quarters from the earnings?** A) While Q2FY26 results season is looking promising, it all depends on the continuation of the recent positivity in the domestic economy.

Fortunately, there are multiple triggers which haven’t yet fully played out – Income tax rate cuts, interest rate cuts, GST rate cuts, 8th pay commission, wealth transfer schemes at state government levels, above-average monsoons, etc.

Thus, there is high hope that these all lead to a sustained recovery in consumption across both rural and urban markets, across various parts of the income pyramid, for the next several quarters and years.

Political challenges can be a dark horse to our recovery in the medium term. Upcoming state elections such as those in Bihar and Bengal can cause some short-term uncertainty with regards to fiscal and other macro factors, especially if the outcomes point to more welfare spending rather than capex.

Finally, the US-India trade deal remains in limbo as of now. Our exports led companies are at risk if the tariffs don’t come down substantially in a short period of time.

Q) Which sectors are looking attractive now, post Q2 earnings? A) Capital Goods, especially those exposed to the power sector, continue to look attractive to us even now. In fact, most of them have come out with a great set of numbers and have seen upgrades in their earnings estimates.

They have accordingly re-rated but the growth visibility remains strong for several years into the future.

We continue to like BFSI as earnings growth is set to recover from their recent lows and valuations are reasonable across most of them. Banks are set to improve their earnings growth in FY27 and beyond post a muted FY26 as NIM pressures abate.

Similarly, NBFCs are recovering from their asset quality deterioration and focus will shift to growth again.

With an improving equity market, capital market companies also see a revival in their fortunes. Among other sectors, we selectively like certain companies in chemicals, capital goods, healthcare, etc. that have come out with a good set of numbers and have a strong growth outlook. ** Q) What is your view on the recent wave of new listings on Dalal Street? Are there any interesting names you’re tracking? Also, given that most IPOs leave little on the table for retail investors, do you think it’s better to look for opportunities in the secondary market?** A) Post a lull in IPO activity during FY19 and FY20, IPO activity picked up with more companies coming up for listing along with larger size of transactions. FY24 and FY25 saw around 100+ companies getting listed annually with FY25 particularly crossing Rs 2 lac crore in transaction value (OFS, primary capital raises, etc.).

The 8 months of FY26 has already seen close to 100 companies coming up for IPO with cumulative transaction value of Rs 1.25 lac crore. Thus, FY26 will turn out to be the best ever year for India’s primary market.

In fact, Oct 2025 saw the strongest-ever IPO activity in a single month with 10 IPOs raising USD 5 bn or ~ INR 45000 crore.

Our view: The fact that there are so many companies coming out with an IPO indicates the vibrant diversity of our economy and the improving depth and breadth of our Indian equity markets.

IPOs have been spread across sectors like insurance, pharma, solar value chain, REITs, Consumer Discretionary, Education, new-age digital companies, etc.

There are several companies that got listed in last 3-4 months and look interesting to us from a long-term perspective such as Urban Company, LG Electronics, Rubicon Research, Sri Lotus Developers, NSDL, Bluestone Jewellery, Seshaasai Technologies, HDB Financial Services, Tata Capital, Ather Energy, Anthem Biosciences, Aditya Infotech, etc.

(As a disclaimer, we don’t own any of these names as of now. We evaluate them at the time of their listing and continue to track them post listing. In several cases, after a few quarters or years, as they establish credibility and a track record, some of these may become attractive from an investment perspective.)

Unfortunately, most IPOs leave very little on the table for investors. Very few recent IPO companies have come with reasonable valuations in which case they have been heavily oversubscribed and given good listing gains for people who were allotted shares. In some cases, the IPO company has a unique business model with limited direct peers available in the listed space. Such companies tend to get a scarcity premium.

In cases where there are already listed peers, valuation is easier to arrive at. Many a times, these IPOs help re-rate the sector peers to higher valuation multiples.

Hence, rather than running after these IPOs, it makes sense to look at these listed peers and be invested in them, assuming that their fundamentals are in place and valuations reasonable.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)