India's stock market is still in a very complex environment, with high oil prices, weak export demand, geopolitical uncertainty, and weather-related concerns keeping investors cautious. But the Q1 FY27 earnings season has come in, and the results of companies have been better than the market expected in many divisions.
Aman Chowhan, fund manager at Abakkus Asset Manager, says in a statement that the June-quarter earnings season has been a positive surprise for the market. He also spoke of the strength of domestic demand that has survived the sharp rise in oil prices.
Chowhan's comments highlight a market where broad-based optimism is still a challenge, but few sectors have strong fundamentals.
Q1 Earnings Provide a Positive Surprise
The Q1 FY27 earnings season was much better than expected, as Chowhan said.
Several companies’ performance has eased some fears of how macroeconomic forces would affect corporate profitability. Not all sectors have delivered equally good results, but the overall earnings picture has provided investors with some comfort.
One of the positive aspects of domestic demand has been robust. Higher crude oil prices can raise input and transportation costs and may reduce household purchasing power. Despite these concerns, consumer and economic activity in India has been resilient.
This domestic strength would provide a lot of cushion if global demand is not clear.
Selective Positive View on Financial Stocks
Chowhan remains positive on large non-banking financial companies (NBFCs) and mid-sized private-sector banks in the financial sector.
He said credit growth is picking up, indicating that demand for loans and financing is improving. However, the non-performing asset cycle remains relatively healthy, and some of the concerns around asset quality are mitigated by the non-performing asset cycle.
Chowhan, though, sees comparatively little headroom for further growth among the largest banks.
This makes some NBFCs and mid-sized private lenders more interesting from a growth perspective, especially if credit expansion continues and asset quality is stable.
Pharma CDMO Gains Seen as Sustainable
Another area where Chowhan remains positive is pharmaceutical contract development and manufacturing organisation (CDMO).
The gains seen across the pharma CDMO space are sustainable, and the recent improvement is attributed to more durable business trends, not just temporary changes, he said.
CDMO industries have received much more attention in recent years as global pharmaceutical companies try to diversify supply chains and manufacturing.
For investors, the sustainability of earnings and profitability will remain an important factor when evaluating companies operating in this segment.
Newly Listed Companies Show Profitability
Chowhan also highlighted the profitability profile of companies that have recently entered the stock market.
According to his assessment, most newly listed companies are profitable, and this is something investors may find relevant as they assess the pipeline of IPOs on the horizon.
The profitability of new listings can provide a better fundamental basis for valuation than companies that launch in the market mainly on future growth expectations.
Investors must weigh up individual business models, valuations, competitive advantages and earnings sustainability before making decisions.
Weak Export Demand Remains a Concern
Despite the positive signals from domestic demand and Q1 earnings, the external environment remains challenging.
Weak export demand has been identified by Chowhan as one of the top concerns for the Indian economy and corporate sector. A slowdown in global demand can affect industries that depend heavily on overseas markets, particularly manufacturing and export-oriented businesses.
The possibility of continued El Niño-related weather concerns is another factor investors need to monitor. Weather conditions can influence agricultural output, food inflation and rural consumption, creating second-order effects across the broader economy.
Broad Market View Remains Difficult
With domestic and global uncertainties present, Chowhan warned that one should not take a broad view of the market.
Instead, his comments suggest a more selective investment strategy. Areas with improving credit growth, stable asset quality and sustainable earnings could be better positioned than sectors facing persistent external pressures.
Large NBFCs, mid-sized private banks and pharma CDMO companies are among those sectors where his outlook remains constructive.
At the same time, there are some positive developments in the domestic economy to boost the share market and better-than-expected Q1 earnings.
Selectivity Could Be Key for Investors
The current market environment is mixed. On one hand, domestic demand and corporate earnings are holding up better than expected. On the other hand, high oil prices, weak exports, global uncertainty and weather risks continue to create challenges.
Chowhan’s view is that investors should concentrate less on broad market optimism and more on individual companies and sectors with strong underlying fundamentals.
For now, the positive Q1 earnings surprise provides a measure of confidence, while resilient domestic demand remains an important support for the Indian economy. The sustainability of credit growth, pharma CDMO performance and corporate profitability could determine whether this resilience continues through the coming quarters.
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