Indian equity markets have entered a choppy phase, creating uncertainty among investors who had stepped into the new year with high expectations from the earnings season. Recent concerns around labour code adjustments, highlighted by early signals from IT bellwether TCS, appear to have added to market nervousness, even as broader fundamentals remain intact.

Market Outlook and Earnings Expectations

Dipan Mehta, Director at Elixir Equities, admits to being surprised by the recent correction. "Even I am perplexed. I was very positive from Diwali and into the New Year and expected the earnings season to bring good tidings. At least for the time being, I have been proved wrong," he said.

However, Mehta cautioned against reading too much into short-term market movements, noting that volatility is part and parcel of equity investing. He remains optimistic that the current earnings season could turn out to be one of the better ones seen in the last seven to eight quarters and potentially lay the foundation for a fresh rally beyond previous highs.

Financialisation Theme: Selective Approach Preferred

On the theme of financialisation of savings, Mehta prefers selective exposure rather than a broad bet on asset management companies (AMCs). While acknowledging that AMCs remain a good long-term story, he believes wealth management firms offer greater flexibility and resilience.

He pointed to the strong performance of companies like Anand Rathi Wealth and 360 One, as well as mutual fund distributor Prudent, as better plays on this trend. According to him, AMCs face intense competition and periodic regulatory interventions on pricing and commissions, whereas wealth managers benefit from diversified business models.

Mehta also flagged stockbroking platforms as an emerging opportunity, citing Groww's rapid scale-up and its potential to diversify its product offerings. He added that he would continue to stay invested in AMCs and expects another strong year for the segment.

IT Services Sector: Turning Positive on AI Catalyst

After a prolonged period of underperformance, Mehta is turning incrementally positive on the IT services sector. "I am getting supportive on IT and gradually more positive," he said, highlighting artificial intelligence as the next growth catalyst.

While uncertain whether AI can immediately drive double-digit growth for large IT services firms, he believes several midcap companies are well-placed to benefit from this transition. Tata Elxsi's recent performance, aided by a revival in software-defined vehicle projects in the automotive vertical, serves as an example.

Commenting on Infosys' quarterly performance, Mehta described the numbers as largely predictable, emphasizing that the real focus should be on management commentary and AI-led project contributions.

Sectoral Expectations: Broad-Based Recovery Anticipated

Mehta expects earnings recovery to be broad-based across sectors. Excluding exporters heavily dependent on the US market, he believes most domestic-facing industries should post healthy numbers, aided by a strong festive and wedding season.

Key sectors expected to perform well:

• Autos
• Cement
• Metals
• IT services (over time)
• Banking and NBFCs

He is particularly upbeat on metals, citing higher prices and potential for strong results from companies such as Vedanta, Hindustan Copper, NMDC, and Nalco. Banking and NBFCs also appear on solid footing, supported by encouraging pre-quarter updates and robust business momentum, as seen in Bajaj Finance's December-quarter performance.

Reliance Industries: Cautious Stance on Corporate Structure

On Reliance Industries, Mehta strikes a more cautious note. He believes the stock's outlook is less about near-term earnings and more about its evolving corporate structure. As Reliance increasingly resembles a holding company, the prospect of separate listings for Jio and the retail business raises the possibility of a holding company discount being applied to the parent.

While the oil-to-chemicals business remains a strong cash generator, Mehta questions whether it merits a higher valuation multiple. He argues that a formal demerger, allowing shareholders to directly own Jio and Reliance Retail, would unlock maximum value, though management has shown little inclination to pursue that route.

Mehta's approach remains earnings-focused, emphasizing that while markets may sway unpredictably in the short term, sustained improvement in corporate profits ultimately drives durable rallies.

Dipan Mehta, Director at Elixir Equities, has shared his investment perspectives across key sectors, identifying value opportunities in oil marketing companies and power finance lenders while expressing caution on select stocks. His views highlight valuation gaps, earnings visibility, and sector-specific risks that could influence portfolio decisions.

Oil Marketing Companies Present Valuation Appeal

Mehta emphasized that OMCs remain attractive investment candidates, particularly on valuation grounds as highlighted by the government. The sector trades below global peers, creating a compelling value proposition for investors seeking to reduce portfolio valuations.

Referring specifically to BPCL, Mehta noted that refinery expansion initiatives can support both refining and marketing margins. He suggested that investors looking to lower their portfolio's average P/E ratio should consider this segment, with dividend yields providing additional return support.

Power Finance Lenders Show Promise

The investment expert sees significant opportunities in power finance companies, particularly REC, PFC, and IREDA. These companies have demonstrated improved management practices and maintained controlled non-performing assets, creating a favorable investment environment.

Mehta expects these stocks to respond positively when investor interest returns to mid-cap names. He projects earnings growth of 12-15% over the next two to three years, which could support strong returns provided asset quality remains stable.

Caution Advised on Ola Electric

Taking a contrarian stance, Mehta advised investors to avoid Ola Electric at current levels. His negative view stems from multiple concerns about the company's prospects and market position.

He stated that the stock could only be reconsidered if volumes rise materially, indicating the significant operational improvements needed for investment consideration.

IT Services Outlook Turns Constructive

After maintaining a negative stance on IT services for several years due to limited AI revenue scale-up, Mehta's perspective is becoming more constructive. He expects currency depreciation to support earnings once hedge impacts diminish, while large deal rollouts should aid sector growth.

Drawing insights from management commentary at TCS and Accenture, Mehta observed that AI revenues are scaling faster than traditional service lines. He noted that IT stocks are currently under-owned, with valuations, buybacks, and governance providing fundamental support.

Mehta anticipates a trading rally in software services during 2026, suggesting that pharmaceuticals could also benefit, especially if a US trade deal materializes. This shift represents a significant change from his previous cautious stance on the technology sector.