Indian companies’ earnings are poised to get a boost in the second half of the financial year, with early signs of recovery visible in the automobile and financial sectors, according to Amit Premchandani, a fund manager at UTI Mutual Fund. “We expect earnings growth to improve further in Q3 and Q4…FY26 earnings expectations have stabilized at high single digits,” Premchandani, who manages about 39 billion rupees ($444 million) of assets in the UTI Dividend Yield Fund and 100.6 billion rupees of assets in the UTI Value Fund, said in an interview on Monday.
Auto sector seeing benefits of GST cuts
Premchandani expects India’s recent goods and services tax cuts to help consumption of non-essential goods, with automobiles, particularly passenger vehicles, emerging as major beneficiaries. Automakers Mahindra & Mahindra, Hyundai Motor India and TVS Motor have reported a rise in September quarter profits, while their October sales have seen an upswing following the tax cuts.
About 40% of Indian companies have reported earnings upgrades, Jefferies said in a mid-results review this week. India’s top 50 blue-chip firms posted a fifth straight quarter of single-digit percentage profit growth in the previous quarter, with aggregate earnings rising 8%, according to brokerages. The country’s benchmark indexes gained 4.5% in October and are trading 3% below their September 2024 record peaks. “The euphoria has cooled, but the time correction has addressed valuation excesses,” Premchandani said, noting that Nifty 50 valuations have eased to about 20x forward price-to-equity from 22 to 23x a year earlier.
Banking sector outlook brightens amid strong results
The fund manager is also positive about the banking and financial services sector, the outlook for which has brightened due to improving asset quality and normalising loan-to-deposit ratio. India’s largest lender, State Bank of India, has beat analysts’ earnings estimates and raised its full-year loan growth target, while top private lender HDFC Bank also posted upbeat results. ($1 = 87.8950 Indian rupees)