Karthik Kumar, Fund Manager at Axis Mutual Fund, believes recent equity market volatility stems from persistent foreign investor selling, global policy uncertainty, and earnings season caution, though underlying earnings trends show stabilisation signs. Speaking to ET Now, Kumar highlighted that domestic institutional investors continue supporting markets despite amplified volatility from delayed global trade agreements and US policy signals.

Earnings Outlook Shows Progressive Improvement

Kumar noted significant improvement in earnings revision trends over recent quarters. The fund manager observed that earnings downgrades have progressively reduced in magnitude over the last three quarters, creating a more stable foundation for market performance.

Valuations Normalising as Growth Focus Returns

Market valuations have largely normalised following last year's correction, according to Kumar. He expects valuations to appear more reasonable as investors begin factoring in FY28 earnings projections. The fund manager emphasised that markets have not moved ahead of growth fundamentals.

Kumar explained that last year was dominated by value and low-volatility stocks, but expects focus to shift back towards growth combined with quality as earnings revisions stabilise. He stressed that broad-based earnings delivery across FY27 and FY28 will be critical for driving changes in market leadership.

Sector-Wise Earnings Visibility and Positioning

The fund manager identified varying earnings visibility across sectors, with strongest expectations in specific segments:

Strong Earnings Visibility:

• Autos (both two-wheelers and passenger vehicles)
• Oil marketing companies (OMCs)
• Capital goods and industrials
• Telecom sector

Relatively Weaker Outlook:

• Information technology
• Pharmaceuticals
• Non-auto discretionary consumption

Kumar noted that earnings upgrades are clearly visible in autos, industrials, and OMCs, while other sectors could become interesting if guidance improves during the results season.

Financial Sector Remains Core Overweight

Axis Mutual Fund maintains positive stance on financials through diversified exposure across private banks, PSU banks, and NBFCs. Kumar explained that as rate cuts work through the system and liquidity improves, the fund expects credit growth acceleration and margin stabilisation.

Asset Allocation and Budget Expectations

On asset allocation, Kumar emphasised diversification importance despite strong commodity performance. While remaining constructive on gold and silver, he noted the rally strength makes a case for diversified rather than concentrated exposure.

Regarding the Union Budget, Kumar tempered expectations, noting many policy measures including GST cuts and monetary easing have already been implemented. He expects the budget to focus on fine-tuning rather than large structural changes, with no groundbreaking announcements anticipated.

Axis Mutual Fund's Karthik Kumar has identified several key sectors that are expected to drive strong earnings growth during the ongoing earnings season. The fund manager's outlook highlights specific industry segments that appear positioned for robust performance.

Sector-Wise Growth Expectations

Kumar expects strong growth across multiple sectors during the current earnings cycle. The identified sectors include:

• Auto sector: Expected to show strong earnings momentum
• Financials: Positioned for robust growth
• Telecom: Anticipated to deliver strong performance
• Capital goods: Expected to contribute to earnings growth

Market Outlook

The fund manager's assessment comes as investors and market participants closely monitor corporate earnings to evaluate the performance of various industry segments. The identification of these specific sectors suggests a selective approach to growth expectations rather than broad-based optimism across all market segments.

The ongoing earnings season provides crucial insights into corporate performance and sectoral trends, with these four sectors emerging as potential leaders in the current cycle according to Axis Mutual Fund's analysis.