“From a top-down perspective, FY27 should be better on earnings because of two-three things. One is that the nominal GDP will pick up partly because inflation will go up. So, we kind of bottomed out nominal GDP at 8-9%. It will be 10-11% going forward. And corporate earnings obviously have a decent correlation to nominal GDP,” Gunwani explained in an interview to ET Now.
He highlighted that rupee depreciation against the dollar and other Asian currencies is a key factor supporting earnings, particularly for pharma, IT, refining, and oil and gas companies. “Rupee depreciation is good for earnings. So, whether it is pharma, IT, refining, oil and gas—whatever—all that benefits from rupee depreciation. Overall, basis earnings should do better.”
However, Gunwani cautioned that recent market action has been influenced more by global uncertainty around artificial intelligence than by earnings themselves. “If you see, it is not that earnings have been knocked off in the past two-three weeks, but the terminal value of a lot of businesses is under question. So, to my mind at least in the near term, that is a bigger question rather than earnings honesty,” he said.
When asked about sectoral leaders for the potential earnings uptick, Gunwani noted that both domestic and export-oriented sectors are poised to benefit. “Since nominal GDP domestically is up, I guess the domestic sector should do better—banking and whoever is either an exporter or import substitution or pricing of dollars. So, for example, whether it is pharma, IT, refining, metals, all those sectors should benefit from the fact that they effectively have a lot of dollar earnings, and today you are converting that at, let us say, 90-91 rather than 86-87 one year back. So, it is going to be pretty broad-based to my mind.”
He emphasized that while earnings potential is improving, market sentiment is heavily influenced by AI’s impact on IT services. “I do not think earnings is driving this market right now. The whole global market is trying to grapple with what are the sectoral impacts of AI. If it starts from IT services, does it mean that there will be a broad-based slowdown in India because obviously IT services is the biggest export sector we have?”
Gunwani expressed caution regarding traditional IT services companies, noting disruption in areas such as BPO, application development, and infrastructure services. “No, obviously on hindsight we will find some companies doing much better. Question is, is it possible to differentiate those companies adjusted for valuation? Some of these companies are obviously growing faster today, but then they are also valued like that. So, as a stock, out of 10 IT services stock, will there be differentiation in next one year? Obviously, there will be. But is it honestly very easy to pick the winner stock? I think it is very difficult when it is such a sectoral disruption that is happening.”On foreign investor flows, Gunwani remains optimistic. “I am a bit more optimistic right now on foreign flows. One is the rupee has taken a fair amount of beating, probably the worst performing major currency in last six months. Even if IT services is disrupted, if you see the monthly data on services which includes GCC and all other things, that still seems quite strong. So, it is not like our current account is under stress. Now, our capital account has been under stress because foreigners have been selling, but also because Indians have been buying a lot of gold and silver.”
He added that recent volatility in gold and silver prices could help stabilize the capital account, alongside potential shifts in global dollar flows. “Whether it is debt, equity, FDI, I do think that the prospects of getting foreign flows look much-much better at this point of time,” he concluded.
With earnings revival on the horizon, domestic sectors poised for growth, and global AI disruption casting a shadow over IT, investors may need to navigate a complex landscape, balancing short-term uncertainty with medium-term opportunity.
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