1. Macro resilience amid shifting asset assumptions
Assumptions across asset classes regarding allocation, growth, and what has already been priced in are being tested since the beginning of calendar year 2026. A high concentration of investment intensity in fewer areas, ongoing supply chain disruptions, and shifting geopolitical developments continue to weigh on asset prices.
- Frontline vs. Commodities: While select segments like the commodity index are witnessing a structural breakout trend from the last cycle, most frontline assets have largely remained range-bound, experiencing higher volatility as they absorb external factor shocks.
- Financial impact: The operational impact of supply disruptions paired with higher input prices is yet to fully reflect in corporate financials, which will unfold in the near term.
- Macro Stability: Conversely, broad domestic economic indicators remain robust, the fiscal deficit stays well under control, and structural demand trends are stable.
2. Q1FY27 Corporate Earnings: Health top line growth, higher input cost
The upcoming Q1FY27 corporate earnings season will be the first quarter to explicitly reflect the impact of recent global developments. The broader trajectory points to higher top line growth counterbalanced by higher single-digit earnings growth due to escalating input costs.
- Top line & Margin Dynamics: Higher prices could sustain strong top line growth compared to a year ago, while margins are expected to show a mixed trend. Weak pricing power and negative operating leverage are likely to weigh on operating margin performance during the quarter.
- Key trends to watch for– As highlighted in prior commentary, focus remains on the volume pricing trajectory in the top line, inventories and levers company have to sustain the margins/ response to external impact, than just margin trajectory in Q1FY27.
Higher top line growth and downgrade on earnings largely reflects this trajectory.
Table 1: Corporate India – Aggregate TTM Trend
Source: ACE Equity, FirstCore Internal Research
Chart 1 : Corporate India – Quarterly Net Profit & YoY growth (2206 Companies)
Source: ACE Equity, FirstCore Internal Research
Sectoral trends:
Business updates so far points to healthy operational performance for banks in Q1FY27. Top tier IT firms are seen to report sequential decline/marginal increase in dollar revenue growth (-2%to+1%), largely due to delay in conversion of deal pipelines. Crude prices will significantly impact Oil Marketing Companies (OMCs), whereas refining performance is expected to remain strong, backed by strong Gross Refining Margins (GRMs) in the global market. High-cyclical plays in the commodities and mining space are positioned to report strong earnings, driven by superior realizations and higher volumes.
The Cap Divergence – Since the mid & small cap segment reported strong trajectory with lag to large caps we could see higher negative leverage and margin impact in the segment compared to large cap peers.
3. Market Trends & Portfolio Actionables
While frontline indices have remained largely range-bound since April, underlying stock-level volatility has intensified, resulting in sharp swings. We see a highly divergent trend emerging between earnings trajectories and market valuations.
- The Valuation Base: Market under performance over the last two years, coupled with heavy FII outflows—especially within large caps—has established a favourable valuation base. Consequently, the risk-to-reward ratio is significantly more attractive today than it was a year ago.
- Near-Term Headwinds: Stretched global valuations- particularly led by crowded AI trades, an active domestic IPO pipeline absorbing primary market liquidity, and persistent geopolitical friction could continue to weigh on broader markets in the near term.
- Bottom-Up Focus: A favourable risk-to-reward profile is clearly visible in many large-cap stocks when compared to the mid- and small-cap segments. Given the earnings drivers and valuation divergence, we see more bottom-up opportunities.
CHART 2: Nifty 50 Valuations
Source: ACE Equity, FirstCore Internal Research
CHART 3: Top 500 companies by Market Cap – % Fall from 52 week high
4. Portfolio Deployment Approach
To navigate this range-bound yet volatile environment, our capital deployment follows the below approach:
- Front ending large caps: Risk-reward favours large-cap equities, which offer superior valuation comfort and structural resilience against cost inflation.
- Staggered deployment: We will continue to systematically pace our capital deployment, utilizing sharp market swings to accumulate high-conviction ideas/investments.
DISCLAIMER
Representation: This commentary is confidential and for self-reference only. This document is published by FIRSTCOREADVISERS LLP (SEBI Registration: INA000022288 | BSE Enlistment: 2473), a SEBI-registered Registered Investment Advisor regulated under the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013. Investments in securities are subject to market risks. Please read all relevant documents carefully before investing. The purpose of this presentation/note is purely for information purposes. Nothing contained herein should be construed as an offer to buy or sell or a solicitation of an offer to buy or sell. All information provided in this document are subject to change without notice and is obtained from sources believed to be reliable. We do not represent that any information, including any third-party information, is accurate or complete and it should not be relied upon without proper investigation on the part of investor/s. All information, apart from sources mentioned, is collated from publicly available information.
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