Daily Voice: Has the market priced in higher rates but not earnings downgrades? This investment adviser explains

According to Gupta, markets have priced in higher interest rates but have yet to factor in potential earnings downgrades. A sustained market rally would require crude oil prices to ease or corporate earnings to hold up in the coming quarters, he said. At the sectoral level, SKG Investments and Advisory is selectively investing in IT companies with visible AI-related deal wins. However, the firm is avoiding broad-based exposure to the sector until there are clearer signs that earnings have bottomed out, Gupta said.

Do you think IT companies need to further recalibrate their AI-led growth strategies? Yes. Indian IT companies mostly earn fees for building and running AI systems on models, chips and cloud platforms that foreign firms own, so the intellectual property and most of the value stay abroad. For example, HCL Tech’s new partnership with Anthropic is aimed at helping enterprises adopt agentic AI built on Anthropic’s models.

HCL Tech’s advanced AI revenue grew 78 percent YoY, but its total dollar revenue grew only 2.2 percent. IT companies should move investment from implementation work towards owning the technology: their own AI models and platforms, chip design and embedded software IP, and products they can license. China shows the value of ownership. Its domestic suppliers held 55 percent of their home robot market in 2025, while India installed only about 10,500 robots.

Owned IP earns licence income and pricing power. Services work keeps revenue tied to headcount and client budgets. Are you still cautious on IT stocks, or have you started nibbling at opportunities in the sector? A sector usually becomes worth buying when three things line up: prices have already fallen, earnings stop getting worse, and the reason for the fall turns out to be temporary rather than permanent.

Indian IT meets the first condition. The Nifty IT index had fallen over -16 percent YTD as of October 16, 2026. The second condition is only partly met. If we look at the IT companies in Nifty 500, we see Profit across the 25 IT companies rose 15.6 percent YoY, but only 9 grew profit QoQ, and margin slipped slightly. The third condition is still uncertain, because AI may permanently lower the price clients pay for traditional services.

We are nibbling selectively in companies with visible AI deal wins, but we are not buying the sector broadly until earnings show a clear bottom. Have you started investing in the insurance sector following the correction triggered by IRDAI-led regulatory changes, or would you prefer to wait for the dust to settle before taking exposure? IRDAI’s draft rules set all inclusive commission caps by product and channel.

Credit life commission via NBFCs falls from 42 percent to 2-2.5 percent, and term insurance commission falls from 51 percent to 25 percent. Expense ceilings phase in from FY28. Life insurers expenses must fall from 20.2 percent of premium in FY26 to 15 percent by FY29. Today, 20 of 22 life insurers and 28 of 31 general insurers are above that FY29 limit. First year payouts for multi-partner banks fall 40 percent, from a 33 percent average to a 20 percent cap.

We are not buying the sector broadly yet. We favour large, low cost insurers with strong tied agency. We avoid NBFCs that depend heavily on insurance fees, insurers that rely on multi partner bank distribution, and motor dealers. We shall wait for the final rules, Reported earnings do not yet reflect the proposed commission caps, so current P/E multiples understate the risk. Do you expect the US Federal Reserve to raise interest rates at its October policy meeting, given that inflation and other economic indicators remain above levels consistent with its 2 percent target?

The Fed raised rates by 25 bps to 3.75-4.00 percent in September in a unanimous vote. September headline CPI rose to 3.7 percent, driven by energy, while core inflation was 2.6 percent. After the CPI release, the market implied odds of an October hike rose to 35 percent from 22 percent. FOMC minutes show most officials expect another hike by year-end, without committing to a date. We expect a hold in October and a hike in December.

Core inflation is close to target. The overshoot is mostly energy, and rate hikes do little to fix that. A December hike would still keep pressure on emerging market currencies, including the rupee. With headwinds such as higher real yields, a stronger US dollar and elevated commodity prices, do you think further rupee depreciation is more likely than significant appreciation in the coming months?

The rupee slid to 96.85 per dollar on October 7, close to its record low. RBI intervention contributed to a $51 billion fall in forex reserves in the four weeks to 2 October Bloomberg. After RBI curbs, the rupee recovered to about 95.3. Petroleum products companies grew sales, yet their profits fell. That suggests higher crude costs that companies could not pass on. Brent December futures trades near $105.

Mild depreciation is more likely than significant appreciation. RBI deployed $75-80 billion to defend rupee since June, the pace at which reserves are falling limits how long the RBI can defend the currency. Do you expect the RBI to reverse the entire interest rate cut cycle over the coming policy meetings? The RBI raised the repo rate by 25 bps to 5.50 percent and changed its stance from ‘neutral’ to ‘calibrated tightening’.

The Monetary Policy Committee (MPC) voted 6-0 on the rate but only 4-2 on the stance. CPI inflation rose from 2.74 percent in January to 5.54 percent in September, led by food inflation of 7.74 percent. Core inflation was 4.2 percent in August, but only 2.9 percent excluding gold and silver. Bank credit growth of 18.1 percent, up from 10.4 percent a year ago, adds a demand side risk. The RBI assumes crude at $95 a barrel for the second half of FY27, but September’s crude basket was already 22 percent above that.

We expect some more hikes of 25 bps each, however reversing the full 125 bps cut cycle that began at 6.5 percent would need crude to stay above $95 and the Fed to keep hiking. Has the equity market fully priced in the existing headwinds, paving the way for an upmove in the short to medium term? A stock market’s level depends on two things: what investors expect companies to earn, and the multiple (P/E) they are willing to pay for those earnings.

Headwinds such as higher interest rates, a weaker rupee and foreign selling usually hit the multiple first, because they raise the return investors demand. Damage to earnings comes later, as higher costs work through to results. On the multiple, much of the adjustment has already happened. The Nifty 50 P/E is 19.12, below its five-year median of 21.95. On earnings, the evidence is incomplete. Nifty 500 profit excluding petroleum and telecom rose 18.7 percent YoY.

However, these mostly June quarter results predate October’s rate hike and the rise in crude from $82 to $116 a barrel over July-September. The market has priced in higher rates but not yet the earnings downgrades. A lasting upmove needs crude to ease or earnings to hold up in the coming quarters. Do you expect AI companies to deliver sustainable earnings growth in the coming years? Consensus US hyperscaler capex is $800 billion for 2026 and around $1.1 trillion for 2027.

In the June quarter, hyperscalers reported faster cloud revenue growth and better margins, which partly eased investor worries about returns on this spending. However, AI capex is estimated to take up 93 percent of hyperscalers operating cash flow in 2026, up from 33 percent in 2023. In the October BofA fund manager survey, 57 percent of respondents did not expect any hyperscaler to cut capex in the next six months.

In India, the Electrical Equipment sector, which benefits from capex including data centres, grew profits substantially over a short period. Chip and infrastructure suppliers can sustain earnings growth for one to two years. Returns for the hyperscalers that are spending this capex are still unproven. If capex slows, suppliers will be hit first.