Muted earnings weigh on markets, but discretionary sectors show potential: Edelweiss AMC

Trideep Bhattacharya, Chief Investment Officer - Equities at Edelweiss AMC, shared his insights on the current market outlook and expectations for earnings growth.

Bhattacharya expressed doubts about significant earnings upgrades on a net balance basis. He noted, “I doubt if we see major earnings upgrades on a net balance basis. There could be companies who could have earnings upgrades over on an individual basis, but unlikely to see upgrades on a holistic basis and that is the reason why the market, after reaching levels close to those of last September, have taken a bit of a breather.”.”

Despite this cautious outlook, Bhattacharya believes that while the current earnings season may remain subdued, there are early signs of improvement in economic decision-making and liquidity conditions, which are essential drivers of corporate earnings.

However, he pointed out that the impact of these developments on earnings will take time to materialise. He expects the ongoing cycle of earnings downgrades to end in the second half of the year, with a few sectors likely to lead the recovery.

Until then, earnings performance is likely to remain muted, although management commentaries may carry a tone of cautious optimism.

Bhattacharya noted that companies with global exposure continue to face uncertainty due to unresolved tariff issues, despite initial expectations of clarity during the 90-day review window. At this stage, deals are being made, but formal agreements are still lacking.

Read Here | Tariff fears could get real from August 1, warns Richard Harris

Bhattacharya sees growth opportunities in select areas within the broader consumer discretionary space—specifically hospitals, hotels, and capital markets. These segments, though smaller in size and mostly within the midcap universe, continue to show meaningful momentum.

He categorised consumption into three types: luxury, mass, and rural. He observed that luxury consumption remains strong, rural demand is showing signs of improvement, but mass consumption continues to lag.

Edelweiss AMC’s portfolios remain focused on discretionary segments, which are performing well. He cited the recent performance of a hotel company as an example, highlighting the robust numbers as a reflection of the segment’s strength.

Bhattacharya believes the IT sector may have reached a bottom in terms of earnings and sentiment. He described the current environment as one of the most difficult for IT services, with clients—primarily in the US—grappling with uncertainty around tariffs and broader business conditions.

In his view, this has created a worst-case scenario for decision-making among global clients, second only to an actual global recession.

In light of these challenges, Edelweiss AMC has moved from an underweight position in IT to a more neutral stance across its portfolios.

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