Market Rerating Hinges on Earnings Upgrades, Buy in Phases: Axis Direct CEO

Axis Direct CEO Highlights Earnings Upgrades as Key to Market Recovery

Pranav Haridasan emphasizes a phased investment approach amid market consolidation.

Earnings Growth as a Catalyst

In an email interview, Haridasan outlined three critical factors that could trigger a significant market recovery in the coming months. The first is corporate earnings, particularly margins. While the Nifty’s profit after tax (PAT) grew by 18% year-on-year in Q1 FY27, this growth was largely driven by the commodities and financial sectors. He noted that the sustainability of this growth depends on whether input cost pressures ease sufficiently to allow for broader operating leverage across sectors.

Policy and Currency Dynamics

The second factor is the interplay of policy and currency. The Reserve Bank of India’s (RBI) recent decision to raise the repo rate to 5.50% aims to stabilize the rupee and manage inflation expectations. Haridasan pointed out that a sustained decline in crude oil prices could allow the RBI to pause its rate hikes, benefiting rate-sensitive sectors. With the rupee currently undervalued, he believes this presents a unique entry point for foreign investors, especially as India’s weight in the MSCI Emerging Markets index has decreased significantly.

Market Positioning and Sentiment

The third factor is market positioning. With foreign portfolio investor (FPI) ownership at a multi-year low following substantial outflows, Haridasan suggests that the market is currently discounting more adverse outcomes than warranted. He cautions against prematurely declaring a market bottom, emphasizing the importance of risk-reward assessments. The Nifty trades below its long-term average, indicating potential for recovery, but he advocates for a cautious approach focused on large-cap stocks over the next two to three quarters.

Domestic Liquidity and Retail Investor Behavior

Haridasan noted that domestic liquidity has significantly altered the market’s character, with domestic institutional investors (DIIs) absorbing much of the selling pressure from FPIs. Monthly systematic investment plan (SIP) inflows reached a record high, indicating robust retail participation. However, there are signs of caution among retail investors, with a decline in new demat account openings and active participation in the cash market. This shift suggests that while existing investors are willing to take risks, new entrants are more hesitant.

Opportunities and Risks Ahead

Looking ahead, Haridasan identifies key growth opportunities in sectors such as financial services, manufacturing, and healthcare, driven by rising incomes and productivity gains. However, he warns of potential risks, including high valuations, oil-led inflation, and currency volatility. Job creation remains a critical concern, particularly as the IT sector adapts to new technologies, which could impact urban discretionary spending.

Key Highlights

• Earnings upgrades are essential for a market rerating.
• Domestic liquidity is currently supporting the market amid FPI outflows.
• Investors are advised to adopt a phased investment strategy.
• Key growth sectors include financials, manufacturing, and healthcare.
• Risks include high valuations and potential job market slowdowns.

Investor Note: Investors should remain vigilant about market conditions and consider a phased approach to investing, focusing on sectors with strong growth potential while being mindful of the associated risks.