On earnings, Bagga believes the Indian market is approaching a recovery phase over the next two quarters. He noted that the September quarter will mark the bottoming out of downgrades, with markets already anticipating stronger performance in the December and March quarters.
Earlier, expectations of a June recovery were delayed due to a combination of the Prime Minister’s August 15 address and the GST cuts on September 22, which caused widespread postponement of expenditure. Consequently, earnings for the September quarter, particularly for durables and staples manufacturers, will be moderate.
Financials are still recovering: microfinance loans are largely written off, but unsecured loans remain a drag, leading to tepid overall results despite strong performances from leaders in the sector. Bagga expects the market to enter a “catch-up” mode after 13 months of underperformance.
On consumption, Bagga highlighted the divergence between urban and rural demand. Rural consumption is robust due to government transfers and support for 80 crore people, but urban consumption remains muted due to lagging wage growth and inflation. Major MNC FMCG players, primarily focused on urban and semi-urban markets, have seen tepid volume growth, leading to high valuations not yet justified by results.
“What has happened is the urban consumption has lagged, so urban demand has lagged while the rural demand has been quite strong, especially with the food grains and all that expenditure taken over by the government for 80 crores of population. So, there are systemic transfers happening at the bottom of the pyramid, but the middle bulge of the entire population has not seen wage growth of that magnitude as much as the inflation has risen over the covid period and beyond, so that is what we are seeing playing out in the urban consumption. Rural consumption is strong and all these players are largely in the urban and the semi-urban kind of space,” he said.Bagga expects a post-GST consumption boom to benefit autos, auto ancillaries, and durables, but emphasizes the need for further fiscal stimulus—particularly in the February budget—to drive aggregate urban demand. While RBI’s monetary easing and prior GST cuts have been supportive, private wage growth and private capex remain subdued.On macro and global factors, Bagga expects the US Federal Reserve to cut rates due to a slowing labor market, despite inflation hovering around 3–3.1%. He flagged tariff impacts and oil prices as key variables affecting markets, noting that any changes in inflation or global trade dynamics will be closely watched by investors.
Regarding sectors, Bagga was cautious on telecom. He suggested focusing on market leaders like Bharti and avoiding highly indebted players such as Vodafone Idea, which remains exposed to regulatory and debt risks. He highlighted that early strategic moves, capital raising, and pricing power have benefited strong incumbents, reinforcing his preference for sector champions over turnaround stories.
