Markets seem to have priced in earnings downgrades: Yogesh Patil, LIC MF

Yogesh Patil of LIC Mutual Fund believes that trade near-term uncertainty around trade wars may impact the investment decisions for now.

It has been a nervous few trading sessions for the Indian stock markets as they grappled with US tariff-related developments amid June 2025 quarter earnings season back home. Yogesh Patil, chief investment officer for equity at LIC Mutual Fund, tells Puneet Wadhwa in an email interview that though near-term uncertainty around trade wars may impact the investment decisions, in the medium-to-long term, capital is expected to flow into emerging markets. Edited excerpts:  Have the US tariffs taken the wind out of the sails of Indian markets?  The imposition of tariffs by the United States on most countries has introduced heightened uncertainty across global equity markets. While this environment remains uncertain, especially in the equity markets, India is relatively well-positioned to navigate these challenges. In fact, Indian exporters may benefit from the shifting trade landscape, as higher tariffs on competing nations could enhance the competitiveness of Indian goods in the US market.  Are the markets over enthusiastic about corporate earnings growth?  Markets seem to have largely priced in recent earnings downgrades. We anticipate earnings growth from emerging sectors, particularly capital goods, power, and allied industries. These opportunities are predominantly found in mid- and small-cap segments. In the near-term, price movements are expected to remain stock-specific. Some large-cap stocks that have shown muted earnings growth over the past year or two may continue to remain under pressure.  ALSO READ | Use any tariff-triggered market correction to buy, says Jitendra Gohil  What has been your investment strategy thus far in calendar year 2025 (CY25)?  Our investment philosophy focuses on identifying and investing in companies with strong management, scalable business models, earnings growth, and capital efficiency. While equity markets are currently trading within a narrow range, we remain focused on sectors and businesses where we have clear visibility of earnings growth over the next three to five years. We do not take cash calls in our equity portfolios; most of our funds remain fully invested. Any temporary cash holdings could be as a result of ongoing inflows.  How are you positioned regarding IT Services, Banks / BFSI, Metals and the FMCG sectors?  We maintain an underweight stance on the IT sector. While select companies offer niche opportunities, the broader sector continues to face a subdued demand environment. In contrast, we are overweight on financials, particularly private sector banks and NBFCs. Despite some concerns around asset quality in segments such as unsecured retail and MSMEs, the sector may remain fundamentally stable for medium-term investment.  Key tailwinds include rising rural incomes, lower household tax burdens, implementation of pay commission recommendations, and easing inflation. We remain underweight in metals due to ongoing global uncertainties and volatility in commodity prices, which continue to pose risks to earnings visibility.  ALSO READ | Brokerages size up US's trade punch: Tariff impact seen as limited  What's the road ahead for foreign and domestic flows into Indian equities?  Indian macroeconomic fundamentals are stable and offer good growth visibility in the medium term. Near-term uncertainty around trade wars may impact the investment decisions but in the medium to long term, capital is expected to flow into emerging markets.  A depreciating dollar and potential credit rating downgrade of the US may gradually encourage capital outflows from the US, potentially moving into emerging market equities – including India and towards precious metals. We anticipate increased inflows from both domestic and foreign investors over the next three to four quarters.  Can CY25 be the year of debt as investors seek safety amid uncertain markets and falling interest rates?  Falling interest rates tend to support both equities and fixed income assets. Fixed income investors benefit from capital gains on existing bond holdings, while equity investors may see gains from lower cost of capital and expanding valuation multiples. Reduced interest expenses can improve corporate profitability and stimulate consumer demand, potentially encouraging companies to undertake capital expenditure and expand capacity.  Additionally, a benign inflation environment can help sustain low interest rates, creating a favourable backdrop for equities to perform well following a period of consolidation. In this context, investors are advised to maintain discipline in asset allocation, aligning investments with long-term financial goals and risk tolerance, rather than reacting to short-term market movements.