Markets Poised for H2FY26 Upside as Corporate Earnings Rebound, Says Prescient Capital Founder

Corporate Earnings Rebound to Power Indian Markets in H2FY26, Says Prescient Capital Founder; Four Sectors in Focus

India’s equity markets are poised for a sharp rebound in the second half of FY26, driven by a revival in corporate earnings and strong macroeconomic support from the Government and the Reserve Bank of India (RBI), according to Sonal Minhas, Founder of Prescient Capital.

He believes that the earnings cycle bottomed out in Q1 FY26, and sectors that were laggards in recent quarters — particularly banking and consumption — have likely found their footing. The coming months, Minhas adds, could mark the beginning of a new uptrend for domestic equities as policy stimulus and structural reforms take effect.

Corporate Earnings Bottomed Out; Revival Underway in Key Sectors

“The markets are set for a rebound in H2 FY26, supported by a revival in corporate earnings,” said Minhas. “Sectors that struggled last quarter such as banking and consumption are now stabilising and will likely show stronger results going forward.”

He added that the auto and chemical industries are also expected to deliver improved performance. “The auto sector should benefit from GST rate cuts and rising premiumisation trends, while the chemicals sector appears poised for a cyclical turnaround after years of price pressure from Chinese dumping,” Minhas said.

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Macroeconomic Tailwinds Strengthening Sentiment

According to Minhas, the Government’s fiscal measures and RBI’s accommodative stance are beginning to filter through the economy. The India–US trade deal, he noted, is progressing positively, and while its impact on GDP growth could be marginally negative (up to 0.75 percent in the worst case), any favourable development on that front will “act as a sentiment booster” for the markets.

The combination of macroeconomic stability, monetary easing, and domestic demand recovery sets the stage for a broad-based rebound in equities in the second half of FY26.

Banking Sector: Strong Fundamentals to Drive Recovery

The banking sector, which witnessed muted earnings growth in Q1 FY26 due to the RBI’s 50-basis-point repo rate cut, is expected to bounce back as lending activity gains momentum.

Credit offtake has grown 10 percent year-on-year till August 2025, indicating a healthy appetite for loans across corporate, MSME, and retail segments. “As lower interest rates are fully transmitted, we expect a pickup in credit demand, especially from the corporate and MSME sectors,” Minhas noted.

Consumption Revival: GST Reforms to Release ₹2.5 Lakh Crore Back into the Economy

The consumption sector faced temporary headwinds earlier in FY26 due to subdued urban spending, tight personal credit, and logistical disruptions from Operation Sindoor. However, rural demand remained resilient, cushioning the overall slowdown.

New GST reforms introduced in September 2025 are now expected to inject ₹2–2.5 lakh crore back into the economy through tax savings and higher disposable incomes. This could translate into ₹2,000 per capita in FY26 and ₹4,000 per capita in FY27 for the bottom 50 crore citizens — providing a meaningful boost to consumption.

Auto & Auto Ancillary: GST Cuts and Premiumisation Trends to Fuel Growth

The automotive industry is emerging as a key beneficiary of the ongoing tax rationalisation measures. Minhas expects the GST rate cuts, coupled with a rising trend of premiumisation (increasing sales of SUVs, EVs, and high-end bikes), to drive strong growth in both OEMs and component manufacturers.

He also highlighted the import substitution trend in EV components — motors, controllers, and charging systems — as a new avenue for growth. “Auto ancillaries will likely outperform the broader auto industry due to increased content per vehicle and strong demand visibility,” he said.

Chemicals Sector: Poised for a Cyclical Upswing

After facing four to five years of headwinds from Chinese dumping, the chemicals industry — particularly in agrochemicals, dyes, pigments, and performance chemicals — is set for a cyclical turnaround.

With demand recovering and input prices stabilising, valuations in the sector appear attractive. “This is one of the few spaces where we see both earnings momentum and valuation comfort aligning,” Minhas remarked.

Microfinance Sector Recovery Strengthens

Minhas is also optimistic about the microfinance (MFI) sector, which has undergone significant regulatory tightening since 2024. The RBI and Microfinance Institutions Network (MFIN) capped total borrowings per customer to curb over-leverage, initially hurting asset quality.

However, he noted that top-tier MFIs have strengthened credit checks and diversified portfolios, leading to a steady recovery. “The sector is expected to post strong loan book expansion in H2 FY26,” Minhas said.

Valuations Suggest Market Is Pricing Moderate Growth

At present, the BSE Sensex trades at a TTM P/E of 23x, slightly above its long-term average of 21.8x. According to Minhas, this implies that the market is already factoring in around 15 percent earnings growth over the next year.

“With multiple catalysts — policy rate cuts, GST relief, and higher disposable incomes — we expect mid to high double-digit earnings growth from Q3 FY26 onward,” he said.

He added that the real estate and gold cycles have significantly boosted household wealth. Gold holdings per capita have increased 2.7x since 2022, from ₹82,000 to ₹2.24 lakh, enhancing consumer confidence and spending capacity.

IT Sector: A Contra Play for Long-Term Investors

While Minhas remains cautious on the IT sector in the near term due to global spending slowdowns, he sees selective long-term opportunities.

“The AI investment cycle will create winners among firms that specialise in automation, data analytics, and AI integration,” he said. “It’s too early for a broad-based IT recovery, but niche players with strong AI focus could see order inflows rise in 2026–27.”

Global Factors and the Road Ahead

Globally, India has underperformed major markets over the past year, with the Gift Nifty up only 7 percent, compared to the Nasdaq (+31%), Shanghai Composite (+21%), and German DAX (+20%).

Minhas cautioned that the AI-driven rally in U.S. and Chinese equities could face corrections reminiscent of the early-2000s dot-com bubble. “A 15–20 percent correction in Indian markets is possible if global equities cool off,” he warned, adding that Prescient Capital continues to deploy capital gradually and selectively.

“Overall, the next leg of India’s bull market will be led by domestic sectors — banking, consumption, auto, and chemicals — underpinned by earnings recovery and macro stability,” he concluded.

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