Axis Mutual Fund's Shreyash Devalkar Identifies Four Key Sectors for Growth as Earnings Cycle Stabilizes

Axis Mutual Fund's Shreyash Devalkar has identified selective investment opportunities across four key sectors as market dynamics shift toward earnings visibility and domestic demand recovery. After a volatile phase marked by valuation resets, the fund manager sees stabilization emerging with particular strength in consumption, financials, healthcare, and automobiles.

Earnings Recovery Shows Early Signs of Stabilization

Devalkar believes earnings have bottomed out, with the trajectory looking more constructive going forward. While upgrades may take several quarters to materialize, the pace of earnings downgrades has already slowed, signaling market stabilization.

Early signs of recovery are visible in domestic consumption plays, particularly in autos and discretionary segments, aided by volume upticks following recent GST rate cuts and resulting operating leverage.

Supply-Side Pressures and Market Dynamics

The market faced significant supply pressure in 2025, with nearly 100 IPOs hitting the market and strong pipeline reports indicating continued activity. This supply absorption by domestic demand has affected returns, though Devalkar notes it also helps normalize valuation excesses in the overall listed space while providing opportunities to invest in previously unlisted businesses.

After a couple of strong years for the primary market, a phase of moderation appears inevitable, creating a more balanced investment environment.

Strategic Sector Positioning and Investment Approach

Devalkar maintains an overweight stance on consumption, citing positive impacts from GST rationalization across consumer discretionary companies reporting strong festive-season sales. The fund has increased exposure in financials, positioning for expected revival in credit demand and improved liquidity conditions.

In automobiles, the trend toward premiumization is expected to strengthen, supported by pickup in the replacement cycle. The healthcare sector remains attractive, while IT faces headwinds despite rupee depreciation and attractive absolute valuations.

Policy Impact and Market Outlook

Government reforms in 2025 clearly leaned toward boosting consumption through measures such as lowering income tax rates and rationalizing GST, enhancing disposable income and encouraging higher spending across segments. Structural reforms like labor code implementation signal long-term commitment to improving workforce conditions and productivity.

Devalkar emphasizes that stock selection focusing on growth at reasonable valuations will remain the cornerstone of performance, with clear preference for domestic-oriented sectors over export-heavy plays. As market confidence builds and earnings visibility improves, stock selection will play a bigger role in returns than allocation based on market capitalization.