Rupee stability key market trigger as earnings hold up: Rahul Singh

Indian equities are searching for their next decisive trigger at a time when global cues remain noisy and domestic fundamentals are gradually improving. While geopolitical developments — including a relatively constructive tone from US President Donald Trump on issues such as Greenland and NATO allies — have lent some support to sentiment, market participants say the real test lies closer home.

In a conversation with ET Now, Rahul Singh, Tata Asset Management pointed out that the ongoing earnings season has largely met expectations, offering some comfort on the micro side even as macro concerns continue to weigh on investor confidence.

“Yes, the earnings season has started by and large quite fine actually because the numbers are either in line or better than expectations. The core drivers of earnings, whether it is credit growth, consumption and the likely impact of GST on the outlooks which the companies are painting for next year, all those things are going as per plan. Even IT is kind of, in pockets, managing to surprise. So, to that extent, the earnings season is turning out to be quite fine,” Singh said.

However, he cautioned that earnings alone may not be enough to lift markets meaningfully in the near term. Currency movements, particularly the behaviour of the rupee, have emerged as a key source of unease.

“The bigger issue is obviously on the macro and how the USD-INR is behaving. I think that is creating a little bit of nervousness because a large part of flows obviously tracks that and therefore tends to have a knee-jerk reaction to how the rupee is behaving. So, the first trigger for the market is not going to be the budget, not going to be earnings; it is going to be stability in the rupee,” he said.

Singh noted that the recent depreciation of the rupee has occurred even as crude prices have remained relatively benign, a combination that warrants close monitoring. Until that stabilises, he believes discussions around valuations and earnings growth may not carry much weight.

Valuation metrics, meanwhile, are gradually normalising. “Nifty PE itself has come down from 22.5–23 times forward in the middle of 2024 to now close to 20 times, and earnings are likely to go up. So, all those things are falling in place and now the macro has to fall in place. Earlier, the macro used to be in place and the micro, which is the earnings, used to disappoint. Now, at least temporarily, it is the other way around,” Singh explained. The consolidation seen over the past year to 18 months has also eased valuation pressure across segments. According to Singh, excesses are now more stock-specific rather than sector-wide.

“There are still pockets where there is overvaluation, but they are now more stock specific. From a sectoral level, a lot of the thematic sectors which did well — like defence, manufacturing and capital goods — have seen significant correction from the tops, and at individual stock levels some of those names are becoming more reasonable,” he said, adding that while valuations are not yet outright attractive, they are far more palatable than in 2024.

On market capitalisation preferences, Singh struck a balanced note. While long-term data favours mid- and small-cap stocks, shorter horizons may still suit large-cap exposure better.

“If you make it five years, I will say yes, definitely. You make it two years, I am kind of in the neutralish zone. In a one-year zone, it is still looking like largecaps can do better than mid and small,” he said, pointing out that largecaps currently appear underweight after sustained selling.

Turning to commodities, Singh suggested that the cycle in industrial commodities is still alive, supported by policy measures in China. “We are definitely not in the late stage. We are not in the early stage either. We have crossed that early stage, and these things, when they change, remain like that for a fairly long period of time,” he noted.

Sectorally, his approach remains selective. In IT, the stance has shifted from broad underweights to stock-specific opportunities as growth remains modest but uneven. Real estate, on the other hand, is beginning to look more compelling after a sharp derating.

“There are companies and stocks which are trading below their NAV now — not even taking the land value, but below the NAV of the ongoing plus the pipeline projects. So, definitely somewhere where we are turning slightly more constructive at these valuations,” Singh said.

For now, markets appear to be in a wait-and-watch mode — reassured by steady earnings but unwilling to commit fully until macro stability, particularly on the currency front, comes back into view.