Q1FY27 earnings strong; manufacturing emerges as top bet: Sachin Bajaj

Over a three-to-five-year horizon, Sachin Bajaj of Axis Max Life said that he favours businesses with hard-to-replicate assets, pricing power, credible management teams and strong governance.

As the June 2026 quarter (Q1-FY27) earnings season draws to a close, Sachin Bajaj, executive vice-president and chief investment officer at Axis Max Life told Heena Ojha in an email interview that India Inc.'s earnings recovery was supported by healthy domestic demand, favourable commodity trends, financials, rupee depreciation benefiting exporters and a favourable base. Edited excerpts:  Key takeaways from the Q1FY27 earnings season? Sectorally biggest misses and wins

 

Q1FY27 was one of the strongest earnings seasons in recent years. For the Nifty50 companies, sales and profit growth exceeded the high teens, significantly above consensus estimates. The quarter was supported by healthy domestic demand, strength in commodities, financials, INR depreciation benefiting exporters and a favourable base. Corporate commentary has been broadly positive, with companies maintaining a constructive outlook on demand, suggesting that demand and cost pressures have been less disruptive than initially feared.

 

The sectors that stood out were Financials, NBFCs, Metals, Telecom, and selected export-oriented segments such as chemicals and auto ancillaries. Misses were in Oil Marketing Companies, Aviation, parts of Cement and the consumer space. OMCs and Aviation was impacted by energy-market volatility, while some consumer and cement companies saw margin pressure from higher input costs.

 

How do you distinguish between a buying opportunity and a genuine earnings risk amid geopolitical risks?

 

Geopolitics has been a key source of volatility for risk assets for past few years. We believe one needs to assess whether an event is a temporary shock or whether it impairs a company’s earnings over the medium term. Markets react to events like crude spikes and trade disruptions, but not every event translates into a structural earnings downgrade. A buying opportunity emerges when markets overreact to headlines while the underlying demand environment remains intact and there is no impact on medium to long-term earnings prospects.

 

 DII have cushioned the market amid FII selling. Is this support structurally stronger?

 

Yes, domestic flows are structurally much stronger today than they were a few years back, but they are not completely immune to market cycles. The key driver for these flows has been growing pool of household financial savings flowing into mutual funds, insurance, pension products, and SIPs. Participation of DIIs provides a relatively stable source of flows versus more cyclical nature of foreign flows. While structural drivers for DII flows remain strong at present, but if DII inflows moderate, markets can remain resilient provided earnings continue to grow at a healthy pace.

 

Biggest opportunity from the next leg of India’s growth? 

 

India’s growth is likely to be driven by a combination of themes: financialisation, manufacturing, premiumization, and platform businesses. India continues to gain share in the global supply chain across sub-sectors like electronics, auto components and industrial manufacturing. This has been supported by Government incentives and policies, supply chain diversification, healthy domestic demand and import substitution. We believe this is a long-term theme and will continue to gain traction. Financialization remains a multi-year structural story; the steady migration from physical to financial assets continues to create a long runway for asset managers and capital-market intermediaries. We believe direct beneficiaries of the story are Banks, NBFCs,  Insurance, Fintechs and Capital markets.

 

The key risks investors should watch are a) global geopolitical situation, tariffs, trade agreements and market access, making it important not to extrapolate favourable conditions indefinitely and b) valuations: large-cap valuations remain broadly reasonable, but parts of the broader market are trading well above their historical averages. At the same time, subdued market volatility suggests a degree of complacency toward risks around geopolitics, global growth etc. That leaves less margin for error should expectations disappoint.

 

 Right time to increase exposure in SMIDs or book profits?

 

Year-to-date, mid and small caps are up only in single digits, even as the Nifty 50 is down. This has been more of a rebound from the March lows than a speculative melt-up. The more important distinction today is valuation. Small caps are trading at above their five-year average valuations and at a relatively rare premium to large caps. By contrast, mid caps are trading broadly in line with their historical averages and continue to offer a stronger earnings-growth and ROE profile.

 

As long-term institutional investors, we do not try to time markets; we focus on fundamentals. We remain invested in the asset class but are becoming more selective, looking at stocks with sustainable revenue and earnings growth. This space is about individual companies, and we continue to favour businesses with strong earnings visibility, healthy returns, and reasonable valuations, while being more cautious in pockets where exuberance has run ahead of fundamentals. Market corrections, when they occur, are opportunities to add rather than reasons to exit.

 

 If you were building a portfolio today with a 3-5 year horizon, which one theme would you be comfortable holding?

 

Over a three-to-five-year horizon, we favour businesses with hard-to-replicate assets, pricing power, credible management teams and strong governance. We prefer structural growth stories in financials, healthcare, digital platforms, manufacturing, defence, etc. If I have to own only one theme, it would be manufacturing, industrials and localisation of global supply chains. Having said that, we are living in a volatile macro environment, whether geopolitical or due to the speed of technological change, which requires asset managers to stay nimble and alert.

 

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