Markets eye an inflection in earnings downgrade cycle: Trideep Bhattacharya

Q2 may show early stabilisation, while Q3 could reveal stronger festive-driven momentum, Bhattacharya said

India Inc is longing for a consumption boost this festive season with GST and income tax reforms in place. Markets, too, have high hopes. In an email interview with Nikita Vashisht, Trideep Bhattacharya, President and CIO - Equities Edelweiss Asset Management explains how seasonal sentiment may influence investor behaviour and market dynamics, suggesting investors to approach traditions like Muhurat trading with a strategic mindset.  Edited excerpts:

 

Do you think festive optimism aligns with or diverges from actual economic indicators? Could this seasonal sentiment mask underlying risks?

A confluence of macro and policy factors provides a credible consumption catalyst – Goods and services tax (GST) reforms estimated at 0.5–0.7 per cent of GDP, a 150 basis point (bps) decline in inflation over the past year, and 100 bps in cumulative rate cuts. Markets are keen for an inflection in the earnings downgrade cycle. Q2 may show early stabilisation, while Q3 could reveal stronger festive-driven momentum. Yet, sustained demand is essential for a durable earnings upgrade cycle.

 

Given the convergence of festive demand, domestic liquidity, and policy momentum, which sectors do you believe are best positioned to benefit in this festive-quarter?

We expect Q2 earnings to remain lacklustre, largely reflecting muted demand trends. However, we believe management commentary could set the stage for a stronger second half of FY26, as the festive season should drive meaningful demand recovery across sectors. From Q3 onwards, we expect earnings growth to be strong, led by consumption, autos, and financials, thereby marking an inflection point in the earnings cycle.

 

Can Muhurat investing evolve into a strategic investment entry point? How can investors use such moments for portfolio rebalancing or goal-based investing?

While rooted in tradition, Muhurat investing can evolve into a strategic portfolio tool. Investors could use this as a symbolic yet disciplined entry point to realign portfolios, rebalance asset allocation, or initiate long-term goal-based investing.

 

Over time, this approach can enhance portfolio resilience by being a monitoring tool while maintaining the cultural significance of the tradition.

 

Do you observe any divergence between how retail investors perceive and act on festive cues like Muhurat investing versus institutional players?

Retail investors often view festive cues such as Muhurat investing through a cultural and emotional lens, driving participation irrespective of fundamentals. Institutional investors, however, largely treat it as another normal trading day of the year. This divergence underscores the behavioural gap -- retail flows are sentiment-led, while institutions remain anchored to fundamentals, liquidity positioning, and risk management frameworks.

 

Given the high retail participation during the 'muhurat' period, what are the inherent risks for new or uninformed investors who may be entering the market based on tradition rather than fundamental analysis?

Retail participation during Muhurat sessions, if driven by tradition rather than rigorous analysis, could lead to over participation in momentum-driven stocks rather than aligning investments with long-term objectives. The optimism of the day can mask valuation concerns and sector-specific risks. For new investors, this could lead to suboptimal entry points and disappointment over time.

 

Education, disciplined asset allocation, and guidance toward goal-based investing remain essential safeguards against such pitfalls.

 

With flows into equity mutual funds thinning over the last few months, can the new Samvat provide a fillip? Why / why not?

Samvat 2081 was overshadowed by geopolitical shocks, weaker Indo-US ties, and macro headwinds, which dampened flows. In this context, Samvat 2082 offers a more constructive backdrop, with likely resolution of some global risks and supportive domestic policy tailwinds. As earnings upgrades take hold in H2FY26, investor confidence should return. While flows into equity mutual funds have softened, we believe a durable earnings recovery will re-ignite participation, attracting incremental household savings into equities.