Commodity-Led Earnings Boost
Commenting on the theme, Gautam Duggad from Motilal Oswal said, “Metals and oil & gas gave an additional kicker, but even ex-commodities, earnings growth stood at 12%. This is the sixth consecutive quarter of high earnings growth, increasing from 10% to 16% over the period. Out of 27 sectors, 19 delivered double-digit growth, which is encouraging.”
“Strong earnings came from auto, capital goods, NBFCs, and PSU banks. Lending NBFCs grew nearly 30%, non-lending 35%, and PSU banks delivered 18% growth versus an expected 5-6%. Even IT and retail showed healthy growth.”
He also highlighted a smallcap recovery: “Smallcaps posted close to 30% growth after five quarters of zero or negative numbers. Midcaps ex-commodities grew 20%, slowing the pace of earnings cuts significantly.”
Market Sentiment and Valuation ConcernsDuggad noted: “India has underperformed in dollar terms over the last 15-18 months. Largecaps are fairly valued, but midcaps and smallcaps still need selectivity—midcap index trades at 28 times, smallcap at 24 times. Volatility arises from trade deals, IT, and AI disruption, but fiscal and monetary steps by the government and RBI are now reflecting in earnings, particularly in auto and consumer staples.”IT Disruption and Uncertain ValuationsOn IT valuations, Duggad said: “We upgraded IT in November, yet Infosys dropped 15-17% shortly after. It has now retraced to around 1300. Short-term levels remain uncertain.”Narrow Nifty Contributions Mask Broader StrengthDiscussing Nifty earnings, he added: “Financials, consumer, and IT account for 60% of Nifty profits. With these sectors growing only 3-10%, headline Nifty growth of 7-8% is concentrated in few stocks. Broader coverage shows 16% growth, highlighting strong opportunities in mid- and smallcaps. This is truly a stock-picker’s market.”
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