Daily Voice: Markets likely to remain range-bound until foreign outflows ease despite positive domestic macro, says LightHouse Canton MD

Until foreign outflows ease meaningfully, the market is likely to remain range-bound despite positive domestic macroeconomic fundamentals, said Abhay Laijawala, Managing Director and Chief Investment Officer, India, at Lighthouse Canton, in an interview with Moneycontrol. Foreign investors still account for a meaningful 15 percent of the overall market, making the direction of their flows an important factor in determining market trends, he added.

Meanwhile, Laijawala remains cautious on the consumer staples sector, which is currently trading at a 25 percent discount to its long-term valuation. However, despite the valuation discount, he sees near-term concerns for the sector, particularly in light of the potential monsoon shortfall associated with El Nino. Do you see strong and clear earnings visibility for the next three to five years in the telecom sector?

Yes, there is clear earnings visibility for the next three to five years in the Indian telecom sector. The sector has completed its multi-year capital-intensive phase and is transitioning into a structural cycle of ARPU-driven monetization, massive free cash flow (FCF) generation, and balance sheet deleveraging. ARPU monetization has transitioned from a structural promise to the primary engine of profitability over the next few years.

We will see incumbent operators execute regular tariff rationalizations of 10-15 percent. This structural repricing is amplified by subscriber premiumization, as users migrate from legacy subscriptions to high-margin 5G plans and data-heavy Fixed Wireless Access (FWA). Do you expect September-quarter earnings to remain healthy, in line with the June quarter, despite external headwinds? India’s nominal GDP growth rebounding back above the 10 percent threshold after a brief multi-year moderation is the most powerful macro catalyst for corporate profitability.

September-quarter (Q2 FY27) earnings are expected to not only remain healthy but likely accelerate in headline growth compared to the June quarter backed by strong domestic macro and a benign base. Nifty 50 aggregate net profit is projected to rise by almost 22-23 percent year-on-year, marking the strongest profit growth rate in many quarters. Have you increased your exposure to the consumption space?

Where do you see the sector in terms of valuations? We are not positive on consumer staples currently. The consumer staples sector is no longer deeply overvalued in aggregate, having corrected significantly relative to broader market highs. After years of trading at absolute peak multiples due to their defensive label, staples have undergone a multi-quarter cooling-off period. The sector is now trading at a 25 percent discount to its long-term valuation.

However, despite the valuation discount, we see near term concerns particularly from the El Nino related monsoon deficiency. Do you believe the worst is over for equity markets? If so, is the market waiting for a strong earnings-growth signal to look past the external headwinds? Based on valuations and earnings velocity, the market has built a robust fundamental foundation for a bottom. However, calling a definitive end to the correction requires an exhaustion of aggressive FII selling.

Until foreign outflows completely abate, the market is likely to remain range-bound despite the positive domestic macro. Foreigners still constitute a meaningful 15 percent of the total market and hence the direction of their behaviour helps answer this question conclusively. High-frequency data points to solid underlying growth, successfully shrugging off persistent oil price volatility, sticky bond yields, and heavy global macro headwinds.

Yet, domestic market sentiment feels heavy, lethargic, and conspicuously disconnected from economic reality and corporate health. This market fatigue is the direct fallout of a severe liquidity imbalance driven by relentless foreign portfolio outflows. Until this selling abates we cannot say the worst is over, positive fundamentals and valuations notwithstanding.