Expert view: Vaibhav Porwal of Dezerv on market volatility, Q1FY26 earnings, global markets, attractive asset classes

Expert view: The Indian market is still trailing behind the sell-off seen in global markets due to the recent tariffs imposed by Trump and concerns about a potential recession. Today’s Black Monday has unsettled the Indian stock markets. In an interview with Mint, Vaibhav Porwal, Co-Founder of Dezerv, discussed in detail the earnings for Q1FY26, the prospects for a market recovery in the coming year, views on FPI outflows, global market trends, and promising asset classes expected to thrive after market corrections. Here are edited excerpts from the interview:

What are your expectations for Q1FY26 earnings?

A confluence of macroeconomic and domestic factors is shaping market dynamics. Tariffs are beginning to disrupt global trade flows, while a potential rate cut adds complexity by influencing borrowing costs and investment sentiment. Export-oriented sectors with high US exposure must tread cautiously and recalibrate strategies.

The auto industry faces pressure from a 25% tariff on components, squeezing margins and disrupting supply chains. Passenger vehicle demand growth for FY26 is expected to remain in low single digits, reflecting weak consumer sentiment. The EV segment remains highly competitive, and rising costs put automakers in a bind—absorb them or pass them on, risking demand erosion.

IT services are under strain as AI adoption in the US disrupts traditional outsourcing, while rising costs, tighter visa rules, and onshore hiring trends weigh on growth. Seafood exporters also face hurdles, while pharma has been spared, leading to an uptick in sentiment.

Banks and financials, despite some near-term pressures, remain well-positioned. Loan growth stood at 12% in February, down from 16.6% a year ago, but the long-term credit cycle remains intact.

While competition for deposits and lower rates may compress NIMs, robust balance sheets, strong fee income, and resilient asset quality provide support. Valuations, particularly on a P/B basis, continue to look attractive.

Consumption sectors, including white goods, durables, and discretionary spending, are set for a revival. A ₹1 lakh crore income tax cut is expected to boost demand, benefiting travel, hotels, aviation, alcohol, and retail. QSR chains have also reported stable earnings, signaling improving consumer sentiment. Meanwhile, cement and building materials are poised for growth, with the real estate boom expected to drive demand with a lag.

The power sector continues its uptrend, driven by rising demand from AI, data centers, and manufacturing. With energy security a priority, ₹40 lakh crore in investments is expected over the next decade, extending beyond generation to transmission, distribution, and grid modernization. Private investment in renewables, battery storage, and smart grids is accelerating, reinforcing India’s long-term energy transition.

Do you anticipate a market rebound over the next year, and is there potential for new record highs?

Until September 2024, an unrelenting bull run made money making look almost effortless, but the landscape has now shifted. Gone are the days of easy money—disciplined, bottom-up stock selection is now key. Encouragingly, valuations have moderated, interest rate cuts are on the horizon, fiscal policy retains room for expansion, a softer dollar offers relief, and GST collections remain buoyant. However, India is not immune to global economic uncertainties, which continue to pose risks. We anticipate moderate returns in the range of 8-12% from the Indian equity markets in this financial year.

What is your outlook on FPI outflows?

FII outflows from India were driven by a textbook case of global risk repricing—US 10Y bond yields soared as high as 4.8%, the Dollar Index touched the 110 mark, and safe-haven demand surged amid election uncertainty. Domestically, the combination of slowing earnings growth and rich valuations offered limited upside, making India less attractive on a relative basis. As real yields plunged, FIIs took some money off the table.

The tide appears to be turning. Over the past month, several key concerns have abated, and the Dollar Index has peaked for this cycle as investors brace for upheaval ahead in the US. With the fundamental business case for India as strong as it could be, I see FIIs making a swift comeback. After five months of selling, FIIs turned net buyers in March, with a substantial $2 billion inflow in the last week alone. This shift signals improving sentiment and India’s resilience amid global uncertainties.

How are the global markets reacting to Trump’s reciprocal tariffs? Do you foresee a long-term impact on the Indian market?

Global markets have responded with volatility as Trump’s tariffs disrupt trade expectations. While US industrials and domestic-focused sectors benefit, Asian economies—like China and Vietnam, reliant on exports—are under strain. India finds itself in a unique position, potentially gaining from new trade flows but also needing to safeguard its domestic industries from a flood of low-cost imports.

How are you positioned to cruise through the current volatility? What are your views on large cap Vs mid and small cap equities?

We were fairly ahead of the time to call out the excessive exuberance building up in midcaps & smallcaps. Correction was overdue in many stocks backed just by narratives and not fundamentals. And these were the hardest hit too. Even after the recent correction, midcaps & smallcaps remain relatively expensive whereas there is valuation comfort in the biggies.

We maintain an overweight stance on large caps and favour funds that prioritize high-quality businesses. Our preference leans toward active funds over index funds, given that we believe the market will become more bottom up.

What are some of the most attractive asset classes which are poised to grow post market corrections?

With inflation under control and interest rates elevated, fixed income offers strong real returns, particularly through high-yielding bonds in the 2–3 year duration bracket—ideal for locking in yields.

Gold and precious metals, too, remain a key hedge against currency volatility and geopolitical risks, providing stability in uncertain times. In equities, we favor large-cap, high-quality businesses with strong fundamentals, as they tend to recover faster post-correction. A balanced mix of fixed income, gold, and selective large-cap equities ensures resilience while positioning for long-term gains.

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decision.