Indian Markets Shift Focus to Earnings Season as Investors Seek Clarity on Corporate Performance

Investors in India are pivoting their attention to the upcoming earnings season, with expectations that corporate results will provide clarity on whether companies can maintain growth amid rising input costs. Pankaj Tibrewal from IKIGAI Asset highlighted that the investment environment has improved as geopolitical tensions ease and crude oil prices return to pre-war levels, setting the stage for a critical market pivot.

Why Are Investors Focusing on Earnings Season?

The shift in focus comes as crude oil prices stabilize, reducing pressure on input costs for businesses. Tibrewal, speaking to ET Now, emphasized that the next major market driver will be the first-quarter earnings, which could signal whether Indian companies can navigate cost challenges while sustaining growth. “The Street remains cautious about margins due to elevated raw material costs, but analysts are underestimating potential revenue growth,” he said.

According to Tibrewal, revenue growth could exceed expectations, driven by price hikes implemented by companies. “The biggest disconnect is top-line growth. Many companies have already taken price hikes, and revenues could surprise positively,” he noted. He also pointed to operating leverage as a key factor in cushioning margin pressures across sectors.

Which Sectors Show the Most Potential?

Tibrewal identified the home improvement sector as a standout opportunity, citing favorable dynamics in tiles and wood panels. “Branded tile players are gaining market share as Morbi manufacturers struggle with higher gas costs. Dealer feedback points to a significant pickup in volumes,” he said. He also highlighted strong performance in wood panel companies and sectors benefiting from import substitution.

“Chinese imports have reduced sharply in segments like MDF, while chemicals, textiles, engineering, and auto ancillaries are also seeing improving momentum,” Tibrewal added. These trends reflect a broader shift toward domestic manufacturing and cost optimization.

What Does This Mean for the Nifty Index?

Tibrewal expects double-digit earnings growth for the benchmark index this year, supported by banks and cyclical sectors. “Banking, metals, and cement should contribute meaningfully,” he said. He also noted that nominal GDP growth is likely to drive stronger corporate revenues, with operating leverage supporting earnings growth.

“Corporate India’s top-line growth should improve as nominal GDP remains healthy,” Tibrewal said. He emphasized that demand remains resilient despite higher prices, with companies no longer expressing concerns about demand destruction. “The key challenges are supply chains and raw material costs, while demand remains reasonably good,” he added.

Why Are Private Banks Seen as a Contrarian Bet?

Despite recent underperformance due to foreign institutional investor (FII) selling, Tibrewal views private banks as attractively valued. “Bank balance sheets are in the best shape they have been in for years. Once FII selling stops, banking stocks could quickly return to favor,” he said. He noted that FII flows could re-enter the market if global investors rotate away from AI-driven sectors, which are nearing maturity.

“I am hopeful FIIs will return in the second half of the fiscal year. India looks attractive in dollar terms, while the AI trade globally appears to be entering a mature stage,” Tibrewal said. This aligns with broader trends of investors seeking value in undervalued sectors amid global market shifts.

What Are the Risks and Opportunities?

Tibrewal stressed that this is a “stock picker’s market,” where opportunities lie in sectors and companies with clear earnings visibility. “Many companies can compound earnings at 20% to 25% annually. That is where the best bottom-up opportunities lie,” he said. He advised investors to focus on businesses with strong fundamentals rather than broad market bets.

The upcoming earnings season will be a critical test for Indian companies, with results potentially shaping the next phase of the market’s rally. As Tibrewal noted, “The next big trigger for markets will be the first-quarter earnings.”