Narnolia's Shailendra Kumar Expects Stronger Second-Half Corporate Earnings Amid Improved Market Conditions

Earnings Outlook for FY27 Remains Uncertain Amid West Asia Crisis

The recently concluded March quarter earnings season reflected continued improvement in corporate performance, but management commentaries remained cautious in light of the evolving energy situation. Despite this, Shailendra Kumar, Chief Investment Officer at Narnolia Financial Services, has expressed greater confidence that the second half of FY27 will be meaningfully stronger than the first half.

According to Kumar, the first quarter is likely to witness some adverse impact on growth arising from the ongoing West Asia crisis. However, his optimism increases considerably from Q3FY27 onwards, as the benefits of various trade agreements signed by India are expected to translate into stronger industrial activity, higher business-to-business demand, and improved economic momentum.

Table: Comparison of Corporate Earnings Growth in 1HFY27 vs. 2HFY27

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The recently concluded March quarter earnings season showed continued improvement in corporate performance, with a 5% growth in Q1, 6% growth in Q2, 8% growth in Q3, and 10% growth in Q4. However, the outlook for FY27 remains uncertain, and it would be prudent to await the Q1FY27 earnings season and management guidance before forming a more definitive view on the trajectory of corporate earnings and economic growth.

RBI's Commentary on Liquidity Management Framework

The Reserve Bank of India (RBI) is expected to maintain a pause on policy rates, but the market will be closely watching for greater clarity on its liquidity management framework aimed at supporting credit growth. The RBI has consistently maintained that credit growth is a leading indicator of economic growth rather than a lagging one, underscoring the importance of adequate liquidity in the system.

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Probability of Rate Hike

Based on prevailing market expectations, the probability of an additional 25 bps rate hike by the US Federal Reserve later this year has increased. The current policy environment remains highly fluid, with monetary policy decisions likely to be driven by incoming data and evolving economic conditions rather than following a predictable trajectory. In India, the policy stance is expected to remain accommodative.

Impact of Peace Deal on Market Sentiment

The market expectation is that a peace agreement could materialize during June, but given the fluid nature of the situation, it is essential to remain prepared for the possibility that the crisis persists longer than anticipated.

Crude Oil Markets and Conflict Resolution

The Brent crude price suggests that the market is pricing in the possibility of an early resolution to the ongoing crisis. An interesting observation is that each recent rally in Brent has struggled to sustain levels beyond US$ 110 per barrel, unlike the sharp spike to nearly US$ 120 witnessed during the peak of the Russia-Ukraine conflict. This indicates that, despite heightened geopolitical concerns, the market does not yet foresee a disruption of similar magnitude.

Power Ancillaries vs. Power Generation and Utility Companies

While power-related companies continue to enjoy strong order books and healthy growth visibility, their valuations have expanded significantly over the past few quarters. As a result, much of the near-term optimism appears to be reflected in stock prices. Therefore, for both utilities and power ancillary companies, it may be prudent to wait for a more attractive entry point.

Stagflationary Shock for the US Economy

Recent surveys indicate that concerns about a potential stagflationary environment in the US are increasing toward the end of 2026. Unemployment has remained above 4 percent since early 2024, while inflation has recently risen above 3.8 percent. However, the probability of a sustained stagflationary environment remains relatively low. Even if the US economy were to technically enter a period characterized by slower growth and elevated inflation, it is more likely to be short-lived rather than a prolonged episode.