Do it yourself

In my view, this market performance implies—

·         Fatigue has set in the leaders of the bull market since 2021, especially PSEs, Infrastructure, commodities, and auto. These sectors look tired and unable to lead the market any further.

·         In the past one year, the market has digested (consolidated) the gains of the post Covid-19 rally in the past one year very well. It has sustained heightened uncertainty and volatility due to geopolitical events, escalation of trade conflicts, and erratic weather, showing remarkable resilience. It would be reasonable to infer that the market is not inclined to slip into a bear phase or correct materially from the current levels.

·         The current earnings expectations are low to moderate. The scope for a significant disappointment is therefore low; though, there is nothing to suggest that a major positive earnings surprise could materialize in 1HFY26, things could be better in 2HFY26 when the trade normalizes, lower rates get transmitted, lower inflation and tax supports urban household consumption; and good monsoon leaves good money in the hands of farmers.

·         Presently, the market may be looking for new leader(s) to lead the next phase of its northward journey.

The challenge before investors, thus, is to hazard a guess which sector or businesses will lead the next bull charge. In my view, it is as difficult a task as it could be. Nonetheless, an opinion needs to be formed to make a strategy congruent to the opinion.

Settings for 2HFY26

Several factors indicate that the second half of FY26 could bring renewed momentum to the markets. While short-term uncertainty persists, the groundwork is being laid for a stronger second half of FY26, in my view.

Southwest Monsoon progress decent

A healthy monsoon is critical for rural demand, agricultural output, and overall economic sentiment. With rainfall patterns looking favorable so far, rural incomes could see an uptick, supporting consumption-led sectors. So far, the monsoon progress is decent. Till 14th July, yesterday, rains have been normal to excess in 64% districts, and deficient 36% of districts. Reservoir levels have been reported to be above average, with 150 major reservoirs presently above 69% of their capacity (14% higher than 10-year average).

Moderate but stable economic growth

India’s GDP growth for FY26e is projected at 6.5% YoY, similar to FY25. While not a significant acceleration, this stability reduces the risk of macroeconomic shocks and provides a steady foundation for corporate earnings. 

Low earnings growth expectations – room for positive surprises

With earnings growth forecasts remaining modest, the likelihood of negative surprises is low. Any upward revisions, as lower raw material prices and rates gets reflected in numbers, could act as a catalyst for market upside.

Geopolitical stability – cooling tempers

After years of heightened geopolitical tensions (Russia-Ukraine, Israel-Hamas, US-China trade wars), there are signs of exhaustion setting in. Leaders and economies are increasingly focused on stability, which could reduce market volatility and improve investor confidence.

Global trade uncertainties may diminish

Global trade uncertainties triggered by conflict in the Middle East Asia and US tariff policies have started to ease. The conflict in the Middle East has calmed with most forces exhausting their resources. The US tariff policy is also likely to stabilize in the next couple of months after lots of trial and error, providing visibility for future terms of trade and growth prospects.

…tomorrow I shall share my thoughts on the prospective leadership.