Has D-Street priced in Q1 earnings rebound?

Nifty24, 252.0020.16. Motilal Oswal Midcap Fund Direct-Growth.

Key points

• Top Trending Stocks: SBI Share Cost, Axis Bank Share Rate, HDFC Bank Share Cost, Infosys Share Rate, Wipro Share Cost, NTPC Share Rate.
• India's earnings recovery has begun to broaden throughout sectors, but the market is yet to fully rate in the upcycle, notes Hemant Kanawala of Kotak Life Insurance.
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• Bigger or Better: BEL's biggest shareholder is additionally its biggest customer – and its rule-maker.
• The Economic Times daily newspaper is available online now.

Nifty24, 252.0020.16. Motilal Oswal Midcap Fund Direct-Growth. The Economic Times daily newspaper is available online now. Earnings recovery still not priced in, notes Kotak Life's Hemant Kanawala. ETMarkets.comLast Updated: Aug 23, 2026, 05: 28: 00 PM IST.

India's earnings recovery has begun to broaden throughout sectors, but the market is yet to fully rate in the upcycle, notes Hemant Kanawala of Kotak Life Insurance. In an interaction, he highlights large-cap valuation comfort, Q1 earnings expansion, and top sector picks including financials and telecom. Listen to this article in summarized format. Unlock AI Briefing and Premium Content. New Year Offer 24 Hours Left. Subscribe Now Already a member? Sign In.

After a subdued market cycle in the last 2 years, how are you assessing the current risk-reward equation in Indian equities, and what could be the key triggers for the market over the next 12 to 18 months? After two subdued years, much of the bad news appears priced in. Relative valuations and performance versus emerging peers are near multi-year lows, so downside looks contained while the earnings recovery isn't yet reflected. Large-caps trade at reasonable multiples (~19.7x FY2027E), with earnings set to compound in the mid-teens. Key triggers are a durable end to the West Asia conflict and softer crude, earnings acceleration (Nifty profits +17% to 18% in FY2027), private capex revival, and a stable external position. Live Events.

Meanwhile, the risks are a prolonged effect of conflict, subdued monsoon, and rate tightening. Encouragingly, the Q1 profits grew 17.7% versus ~10% as projected. Are current valuations adequately reflecting the earnings expansion outlook, or do you see pockets where investor expectations have run ahead of fundamentals? The market demonstrates sharp contrasts. On aggregate it's reasonable, with the Nifty near ~19.7x FY2027E, broadly its long-term average, but this masks wide dispersion. While parts of consumption and investment trade richly, with a significant part of index weight trading over 10% above historical averages, low-P/E sectors like banks, metals and energy anchor the index. Mid-caps and small-caps carry premiums, but this partly reflects their exposure to higher-growth themes, so selective opportunities remain attractive. Conversely, banks and IT services have de-rated meaningfully, offering value. So, earnings are priced unevenly. The froth is concentrated, not broad-based. What do you think of the current Q1 earnings cycle and which sectors surprised positively? Q1FY27 was a picture-perfect, broad-based quarter with an earnings upgrade, one of the strongest over recent years. While the broader universe (ex-OMCs) delivered 22% expansion, nifty 50 PAT grew 18% year-on-year (versus ~10% projected), a 10-quarter high. Encouragingly, plenty of sectors beat expectations and the upgrade-to-downgrade ratio turned favourable at 1.5x. Small-caps led with 31% expansion, mid-caps posted an 11-quarter-high 23%, and large-caps grew 21%. Positive surprises came from metals, Financials (BFSI), select autos and power utilities while OMCs were the key drag against the backdrop of high crude. How are you positioning the portfolio against the backdrop of the ongoing debate around large-caps versus mid-caps and small-caps? Have you begun seeing a meaningful shift in market leadership? We keep a balanced allocation. Large-caps offer valuation comfort, particularly banks and IT. It have de-rated. Mid-caps and small-caps trade at premiums, but that reflects their exposure to higher-growth sectors, so they remain a valuable source of alpha. Over the past three months, broader markets outperformed, with mid-cap and small-cap indices gaining mid-to-high single digits versus low single-digit returns for the Nifty, so leadership has genuinely broadened. We favour financials, hold quality compounders throughout the cap curve, and prefer mid and small cap selectively for an alpha kicker. A durable leadership shift ultimately needs earnings to sustain it. Which sectors at present offer the most attractive combination of earnings visibility, valuation comfort, and balance sheet strength? Conversely, which sectors appear vulnerable to an earnings downgrade? Financials screen best. Banks and insurers offer reasonable valuations, troughing margins, solid credit expansion, benign credit costs, and solid balance sheets. Telecom offers earnings visibility from tariff-led ARPU gains, and discretionary consumption additionally provides good earnings visibility, backed by lower taxes, rate cuts and improving incomes. Though it's cyclical, metals benefit from safeguard duties and higher realisations. On the vulnerable side, we see downgrade risks in staples (margin pressure), IT services (subdued discretionary demand plus AI overhang) and residential real estate (affordability strain). Energy earnings remain volatile given crude and marketing-margin swings. As a long-term equity investor managing insurance capital, how do you balance valuation discipline with the need to remain invested through market volatility? What would create you materially rise cash or reduce equity exposure? As long-term investors of insurance capital with long-dated liabilities, we stay invested through volatility rather than time the market. India's structural drivers reward patience. Importantly, we don't take cash calls in our equity funds. Discipline is expressed through allocation, favouring reasonably valued compounders and trimming froth while retaining exposure to high-growth pockets. Resilient domestic flows provide the structural backing. What would create us turn materially cautious on equities: a prolonged conflict pushing crude above US$ 105 with rate tightening, a sharp deterioration in the growth-inflation mix, or fiscal slippage. Absent those, we treat corrections as opportunities to add equity from a medium-term perspective. Foreign investors have began returning after an extended phase of selling. Is this the beginning of a durable reallocation towards India or a tactical trade driven by global liquidity and currency movements? It's early to call it durable. Though the setup for a larger reallocation is building up, for now it looks more tactical. Foreigners sold heavily over two years (~US$ 25bn out CYTD26), leaving positioning unusually light, with most emerging-market funds underweight India versus benchmark. Recent flows turned positive (~US$ 2bn equity in July, plus ~US$ 9bn debt), aided by currency stability and a solid Q1. Relative valuations and light positioning near multi-year lows are supportive. But a sustained reallocation probable needs global risk appetite to broaden beyond current tech-heavy markets, so India's steady expansion reasserts its appeal. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times).

Bigger or Better: BEL's biggest shareholder is additionally its biggest customer – and its rule-maker. Final part. Train station to rocket propellants, a Nagpur firm's INR21k-cr journey. Are patients paying the cost for India's PE-led healthcare boom? Notably, the Nifty doesn't predict India. It records it.

Taken together, the developments around has D-Street priced in Q1 earnings rebound? Point to a situation that is still moving, and the coming days should bring more clarity.