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The market has rallied smartly after the Trump pause, with Financials leading the way. We are not yet out of the woods on tariffs, but we reiterate that the final outcome is likely to be a much weaker version of the 2-April announcements. We see two key drivers from the market going forward: i) the pace of bilateral trade deals announced by the US, with China in focus; and ii) earnings momentum for India, where the risk to the FY26 Nifty EPS is a moderate 2-3%, in our view.

Theme of the week – Stock Screeners

We run two new screeners against a 500-stock universe with a 5+ analyst coverage. For momentum, we have considered two criteria. First, we filtered for stocks with an over 5% FY26 EPS upgrade in the last 3 months. Top Ideas are Varun Beverages, ICICI Pru Life, and Anant Raj from Emkay Coverage, and Mazagon Dock, Arvind SmartSpaces, and ABB. Second, we looked at change in the Bloomberg consensus rating in the last three months, with Techno Electric and Godrej Consumer Products in the Emkay universe, and Mazagon Dock and ABB in the 5+ Analyst coverage emerging as key ideas.

We also ran a value screen, with FY26E ROCE at more than 30% premium to the 3Y average, and price correcting by more than 35% from a 52-week high (minimum FY26E ROCE: 12%). Key Ideas from Emkay Coverage: Genus Power, Anant Raj, and Go Fashion; and Engineers India, Symphony, and Trent from the Consensus universe.

Technology – It turns the darkest before dawn

The weak results from tech companies do not impact our Overweight view on the sector. Historical trends show that the IT Index has always rallied when the sector PER reaches such lows (Exhibits 7 and 8) and the stocks rally well, ahead of earnings upgrades. The current slowdown is a cyclical one, and we see an upgrade cycle toward the end of CY25, once clarity emerges around tariffs. The underlying imperatives for clients to ratchet up tech spending are compelling, so a down-cycle may not last for long in our view. This is a good time to enter a high-quality sector (strong cash flows, return ratios, and governance) at reasonable valuations.

Financials – Near-term positives to peter out

Lenders are enjoying strong regulatory tailwinds – improved liquidity and easing of lending norms. These benefits are likely to peter out soon, though, especially as large banks face strong margin pressure due to rate cuts being deeper than originally forecast. The longer-term challenges for banks persist – overall growth remains below the RoE, thus leading to weak BVPSg; pockets of excess RoA/RoE continue to be competed away, and fintechs slowly chipping the franchise strengths of incumbents. These are not fully captured in the valuations, despite the severe P/B derating for private banks. We remain UW and prefer playing the rate cycle via autos and the larger consumer discretionary universe.

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