Daily Voice: Divam Sharma sees signs of capitulation in parts of midcap space; market sentiment near peak pessimism

These factors could help markets form a base over the coming weeks, although any recovery is likely to be gradual rather than sharp, he said in an interview with Moneycontrol. Amid the ongoing correction in the broader market, Sharma sees signs of capitulation, with significant erosion in valuations across parts of the midcap segment and broad-based selling pressure. Historically, such phases tend to flush out excesses and create opportunities in fundamentally strong businesses, he said.

Do you believe the market will find a bottom in the next few weeks? Sentiment appears close to peak pessimism, and much of the negative news around crude, the rupee, rates and foreign outflows is arguably already in the price. Valuations have corrected meaningfully from their highs, while domestic flows through SIPs and institutional investors continue to provide a cushion. This should help markets base out over the coming weeks.

That said, volatility may persist until crude and global bond yields stabilise, so the recovery is likely to be gradual rather than sharp. Do you expect the rupee's weakness to ease in the coming weeks? Near-term currency movements depend on several variables, including crude prices, global bond yields, the dollar's strength and the pace of foreign portfolio flows, which makes short-term calls difficult.

Over the longer term, however, India's growth outlook, expanding manufacturing base and deepening capital markets should continue to attract investment. Once macro conditions stabilise and foreign investors return, the rupee should find steady demand. Policy support from the central bank also helps contain excessive volatility. Do you expect AI-driven deflation to have a limited impact on IT companies in H2FY27?

AI will reshape pricing in parts of the business, particularly in traditional services where automation can compress effort and billing. However, Indian IT has a long track record of adapting to technology shifts, from cloud to digital transformation. We expect companies to reposition toward AI-led services, platforms and consulting, while clients will need partners to implement and integrate these tools at scale.

This should help limit the impact over H2FY27, though near-term growth may remain uneven. Do you believe power and pharmaceuticals will remain strong investment themes? Power and pharmaceuticals are essential sectors with structural demand drivers that hold up across economic cycles. Power demand continues to rise with urbanisation, manufacturing growth, data centres and electrification, alongside the ongoing transition to renewable energy.

Pharmaceuticals benefit from resilient domestic demand, export opportunities and rising healthcare spending globally. We believe both remain relevant long-term themes, though investors should stay selective, as stock selection and valuations will matter more than the theme itself. Are we witnessing the early stages of capitulation in the midcap segment? There are signs of capitulation, with meaningful erosion in parts of the midcap space and broad-based selling across the segment.

Historically, such phases tend to wash out excesses and create opportunities in fundamentally strong businesses. Investor interest in the segment remains strong, and domestic participation continues to be healthy. Once pessimism eases, quality midcaps with sound earnings visibility and reasonable valuations could recover well, though investors should avoid companies with stretched balance sheets. Do you expect oil prices to start declining after the US midterm elections?

Oil prices are driven more by geopolitics, supply dynamics and inventory levels than by election outcomes. Ongoing tensions in key producing regions continue to keep a risk premium in prices. Unless there is meaningful de-escalation or a clear improvement in supply, prices may stay elevated for longer. We therefore don't see the midterms alone as a trigger for a decline, though any policy shift affecting sanctions or supply could influence the trajectory.

Could global market sentiment improve if Trump loses the US midterm elections? Election outcomes can influence market sentiment in the short term, especially through expectations around trade, fiscal and foreign policy. However, the global environment has changed structurally, with shifts in supply chains, trade relationships and geopolitical alignments. A return to earlier conditions will take time regardless of the result. Markets are therefore likely to focus more on policy direction, interest rates, inflation and geopolitics than on the election outcome itself.