The June quarter performed better than analysts had expected. While sales grew, margins were still under pressure because rising costs had not been fully passed on to customers.
Ankit Tikmany, Jainam’s Chief Investment Officer, believes Q2FY27 will be stronger both in margin terms and in the breadth of growth. He says the demand signal remains solid.
July GST collections reached a record Rs 2.11 lakh crore, up about 15 percent year‑on‑year. Import‑linked GST rose nearly 29 percent, showing businesses are restocking ahead of the festive season.
Consumer sectors that lagged in Q1 are likely to receive a seasonal lift during the upcoming festive period. This could boost overall growth.
The main caveats are crude oil prices and the monsoon. Both could derail the positive outlook if they worsen.
Tikmany expects the market to hit a new record after Diwali, provided crude prices fall, bank margins recover, and foreign capital starts flowing back into the market.
In his assessment of the June quarter, Tikmany notes it was a volume‑led period with a margin problem, not a demand problem. Once input costs settle, margins should recover faster than demand.
He also predicts the September quarter will be stronger than June, as margin pressure eases and companies can pass price increases through.
Regarding FY27, Tikmany has not revised his earnings growth estimates. Mid‑double‑digit growth remains the base case, based on volumes, margins, and the cost of capital.
Small‑cap companies are expected to deliver stronger earnings growth. They benefit from higher domestic demand, operating leverage, and lower cost of capital compared to large caps.
Sectors on the bullish radar include real estate and financials. Real estate has lower net debt and strong pre‑sale activity, while financials enjoy improving credit growth and clean asset quality.
Sectors to avoid currently are IT and FMCG. IT is trading below long‑term averages but offers limited compounding returns, while FMCG faces high valuations and margin squeezes due to rising input costs.
The market’s next trigger is a fall in crude prices, which would lift the rupee, cool inflation, and improve company margins. A rebound in bank margins and the return of foreign money would also support the index.
With the market having stagnated for nearly two years, valuations are correcting. Once the overhangs clear, the move to new highs is likely to accelerate after Diwali.