Stock market analysis and stories by Anagh Keremutt

Articles by Anagh Keremutt

01 Apr 2026, 06:07PM

Rising energy costs test India’s growth outlook

“A rare ‘Goldilocks’ phase of high growth and low inflation.” That is how Reserve Bank of India Governor Sanjay Malhotra described the Indian economy at the December policy meeting. Interest rates were expected to stay unchanged for an extended period.

That was, of course, before the US and Israel bombed Iran, the Hormuz Strait closed and crude oil prices spiralled up. Goldilocks has run off, as higher prices and a wider trade deficit raise inflation risks and weaken the rupee. Rating agencies now expect the central bank to raise rates in the near term to support the currency.

The surge in oil & gas prices after the Iran conflict is showing up in economic forecasts. Global institutions have started to cut growth estimates for India.

The risk is also in how long higher prices will persist. As the OECD noted, “the breadth and duration of the conflict are very uncertain”.

Forecasts are split in this volatile moment. Some analysts are more optimistic than others, and see domestic demand holding firm and absorbing part of the shock. In this edition of Chart of the Week, we look at how higher energy costs are changing growth forecasts and what that means for the economy.

Growth forecasts fall as oil shock starts to bite

What began as an energy supply disruption for the world is now visible in forecasts, expenses, and household budgets.

Much of this traces back to the disruptions in the Strait of Hormuz. India imports about 88% of its crude oil and nearly half of its liquefied petroleum gas (LPG). Around half of its crude and over three-fourths of LPG shipments pass through this route.

Goldman Sachs cut India’s CY26 growth forecast twice after the war in Iran, with a total reduction of 110 basis points (bps) to 5.9%. India’s dependence on imported energy makes it especially vulnerable. When oil prices rise, India spends more on imports, widening the trade deficit. This pushes the rupee lower, making dollar-based imports like oil and other raw materials costlier.

The effect is most visible in spending. A larger share of the country’s income is forced towards essentials, leaving less room for discretionary purchases. Businesses face the same issue. As costs rise, they either increase prices or take a hit to profits. Goldman Sachs now expects inflation in India to rise by 70 bps to 4.6% for CY26.

Goldman Sachs also downgraded Indian equities to ‘marketweight’, flagging it as less attractive than other Asian markets. It cut its 12-month Nifty 50 target by about 14% to 25,300-25,900, expecting earnings downgrades to follow as higher oil prices drive up costs.

The OECD and Nomura both lowered their FY27 growth forecasts by 10 bps to 6.1% and 7.0%, respectively, while ANZ cut its estimate more sharply to a 6.5%-6.8% range.

There is no consensus among these institutions on how to handle the fall in the rupee. Goldman Sachs expects the RBI to actively intervene and stabilize the rupee, raising interest rates by 50 bps. Higher rates can support the rupee by offering better returns on fixed-income assets, attracting foreign investors. While this may help support the currency, it also raises borrowing costs. Credit becomes more expensive, which slows demand across consumption and investment.

In contrast, Standard Chartered supports letting the rupee weaken further. A weaker rupee reduces demand for imports, boosts exports, and narrows the gap between inflows and outflows. Economist Anubhuti Sahay said, “Despite having reserves to cover about 10 months of imports, the rupee may still need to weaken to absorb pressure from imports, a wider deficit, and capital outflows.”

In the meantime, Indian factories are closing as gas shortages hit industrial clusters. In Gujarat, about 98% of engineering firms are shut, while in Maharashtra, around half the units have closed. “All heating furnaces use LPG and, given the shortage and curbs on industrial use, factories have shut,” said Pankaj Chadha, chairman of the Engineering Exports Promotion Council.

IndusInd Bank’s Gaurav Kapur sees a 30 bps hit to India’s GDP growth and warns that weaker consumption could weigh on the recovery. “The government has enough room to cut fuel taxes and soften the impact of higher oil prices, but the hit on the industrial sector will slow growth,” he said.

Some forecasts are optimistic as domestic demand holds steady

Not all forecasts are turning weaker. Some expect growth to hold up, even after the oil shock, as domestic demand remains intact.

The Associated Chambers of Commerce & Industry of India expects growth to stay above 7%. It points to strong factory and services activity, with readings better than most major economies in February 2026. At the same time, it notes that a weaker rupee and higher fuel prices could push prices up in the months ahead.

S&P Global takes a similar view, raising its FY27 growth forecast by 40 bps to 7.1%. It expects consumption, recovery in private investment, and exports to hold up to support growth. It also notes that higher oil prices may not fully reflect in retail prices, as the government is likely to intervene to limit the impact.

Even so, it flags risks from the West Asia conflict. “Downside risks remain, primarily due to renewed geopolitical tensions and persistent trade-related uncertainties,” it said.

Fitch Ratings also raised its FY27 growth forecast by 30 bps to 6.7%, but with a different timeline. It expects growth to remain weak in the first half of FY27 as higher prices drag spending, before improving later as borrowing becomes cheaper and investment picks up.

This uneven recovery reflects how the oil shock is playing out. It is not just about higher prices, but how the pressure builds and spreads across the economy. Domestic demand is holding up for now, but the strain on growth is already visible.

The Baseline

27 Mar 2026

In a volatile market, FPIs pick sectors showing results over promise

By Anagh Keremutt

As volatility soars, the Indian stock market has become a game of musical chairs, where global investors are crowding into a few select sectors before the music stops.

Over the past year, this rotation sped up, as foreign investors favoured stocks and sectors with clear earnings visibility. FPIs sold over Rs 1 lakh crore worth of shares in the first three months of 2026 alone.

A weaker rupee has added to this pressure, with the currency hovering near Rs 94 against the US dollar.

“Fears of a prolonged Israel-US-Iran conflict and disruption in the Strait of Hormuz have played a key role,” said Vaqarjaved Khan, Senior Fundamental Analyst at Angel One. He added that “rising US bond yields and profit booking after February’s rally” have further worsened stress in stock markets.

In this edition of Chart of the Week, we break down where foreign money is leaving, and where it is staying put.

FPIs cut exposure to IT and consumer stocks

One factor driving foreign investors away from IT is the disruption caused by Artificial Intelligence. AI is taking over routine tech tasks that Indian IT companies have long handled.

Tools like those developed by Anthropic can now do this work, raising concerns that companies may no longer outsource these tasks to Indian IT firms. This has raised doubts around the sector’s future earnings, with over Rs 89,000 crore in outflows over the past twelve months, making it the most heavily sold sector.

Consumer stocks also took a hit, as urban spending slowed despite income tax reforms.

FMCG names have seen persistent selling through FY26, with outflows crossing Rs 36,000 crore. Consumer durables and services also saw pressure, with roughly Rs 18,800 crore and Rs 14,400 crore in outflows, pointing to a broader slowdown in discretionary demand.

The stress intensified in February 2026 when the government raised GST on stick cigarettes from 28% to 40%, along with higher excise duties. This directly impacted ITC, which carries nearly a 28% weight in the broader consumer index.

Even defensive sectors like pharmaceuticals were not spared. The US increased surprise factory inspections, and in September, President Trump imposed 100% tariffs on Indian patented drugs. With the US accounting for about 31% of exports, these measures triggered outflows of over Rs 28,000 crore.

FPIs turn selective in rate-sensitive sectors

Foreign investors have turned cautious in rate-sensitive sectors. Financial services saw heavy selling through most of 2025 and early 2026, as concerns around slowing earnings and high valuations weighed on investor sentiment.

In telecom, FPIs were counting on a 15% price hike by late 2025 or, at the latest, by FY26. Data remains cheap in India, and usage is among the highest globally. However, the last price increase was in July 2024, leading to slower revenue growth through 2025. As price hikes stalled, foreign investors sold over Rs 10,500 crore within the first three months of 2026, though cumulative inflows still stand at nearly Rs 29,500 crore.

The automobile sector recovered from a slowdown by the second half of FY26, supported by festive demand, GST cuts, and income tax relief. Even then, flows stayed weak, with FPIs selling Rs 6,921 crore, indicating that the recovery has yet to translate into consistent earnings visibility.

Real estate is facing a similar gap between demand and reported earnings. Builders can only record revenue once projects are completed and handed over. Godrej Properties saw booking values jump 55% YoY to Rs 8,421 crore in Q3FY26, but revenue fell 17% in the same period.

Lower mortgage rates boosted demand, but rising input costs are cutting into future profits. Aluminum prices are up nearly 24% over the past year, while construction costs have risen 15%. This could squeeze margins by around 5%.

“Developers have absorbed higher costs to protect sales, but if disruptions continue, prices may have to rise and project viability could be affected,” said Keval Valambhia, COO of CREDAI-MCHI.

Investors remained cautious, with nearly Rs 14,500 crore exiting the sector between March 2025 and early March 2026.

Power is running into a different constraint. Capacity has expanded quickly, but transmission gaps have limited how much of that electricity can actually reach consumers, a trend we have discussed earlier. The sector also faced US duties on solar imports before sentiment improved in February 2026. Even so, power recorded net outflows of nearly Rs 16,000 crore over this period, reflecting execution bottlenecks despite strong capacity growth.

Capital flows to sectors with visible growth

If that’s where money is leaving, where is it going?

Heavy manufacturing and capital goods are now the top picks for global investors. Capital goods and metals together brought in about Rs 52,600 crore since last March, making them the biggest drivers of inflows.

Government spending on infrastructure rose 9% to Rs 12.2 lakh crore for FY27. Demand for machinery is improving, with import growth accelerating to 13.4% by the third quarter of FY26. Factory usage levels have risen to 74.8%.

Five-year tax breaks for foreign machinery suppliers and duty cuts on critical minerals are reducing costs and helping companies expand capacity. Policy support and capacity expansion have drawn in over Rs 26,000 crore into capital goods over the past year.

“Valuations in capital goods have eased, which is bringing investors back into the sector,” said U.R. Bhat, co-founder and director at Alphiniti. “The US-India trade deal has also supported this trend,” she added.

Metal producers are benefiting after a prolonged period of cheap Chinese steel imports that had hurt margins. The government imposed anti-dumping duties in December 2025, ranging from $223 to $414 per tonne. This helped India turn into a net exporter in Q3FY26, just as Chinese industrial activity recovered. The sector has seen inflows of over Rs 26,000 crore since March 2025.

Oil & gas attracted strong inflows through most of 2025, supported by domestic demand and improving refining margins. Investors viewed the sector as a play on India’s industrial recovery, with nearly Rs 14,900 crore flowing in between March 2025 and mid-March 2026.

However, this trend reversed sharply in early March 2026. Rising tensions in Iran pushed Brent crude prices close to $120, raising concerns that fuel retailers would have to absorb higher costs. This led to nearly Rs 2,932 crore in outflows in just the first two weeks of March, as investors locked in gains and moved ahead of potential margin pressure.

This shift is playing out across sectors. Foreign capital is backing execution over potential. We are in a highly cautious market, where money is moving only to sectors showing steady, consistent growth.

The Baseline

19 Mar 2026

Superstar investors pay the price for crowded bets

By Anagh Keremutt

Global risks are driving Indian markets this year. The Iran conflict has pushed Brent crude oil prices above $112 as of this writing, while countries wrestle for increasingly scarce oil and gas cargoes.This kind of volatility doesn’t spare even the biggest investors, and superstar portfolios are taking hits.

Over the past three months, many superstar investors’ portfolios have come under pressure largely because they were exposed to similar segments of the market. As these pockets weakened, the impact showed up fast. In most cases, just a few stocks drove the decline.

The other problem is that superstar investors also have favourite sectors, and lean towards them. As a result, many portfolios were concentrated in the same areas. When those segments fell, several holdings dropped together. Changes made during Q3FY26, whether additions or exits, did not always reduce this concentration. This increased the downside in several portfolios.

In this edition of Chart of the Week, we look at what drove the fall in superstar investors’ net worth.

Why portfolio declines widened across investors

The net worth of superstars has been quite volatile, with some falling more sharply than others. Investors who peaked recently have seen smaller drawdowns. Rakesh Jhunjhunwala’s portfolio is down around 7.9%, while Nemish Shah is down about 11.3%.

Those who peaked earlier have seen sharper declines. Vijay Kedia and Premji and Associates are both down close to 47%, while Madhusudan Kela is down over 50%.

The difference comes down to timing and positioning.

Mukul Agrawal maintained an active approach during the December quarter. He acquired new shares in Allcargo Logistics, Hindustan Construction, Sirca Paints, and Sudeep Pharma. He also completely exited his position in Stanley Lifestyles.

However, these decisions failed to address the main risks in his portfolio. About 30% of his portfolio remained tied to Neuland Laboratories, Nuvama Wealth, and ASM Technologies, along with a few other holdings.

In Q3FY26, Neuland’s margins came under pressure due to product mix and higher costs, even as revenue grew. Nuvama saw lower capital markets revenue as volumes softened. ASM Technologies reported strong growth, but the stock corrected as AI disruption concerns dragged tech stocks lower.

Sunil Singhania purchased shares in DCM Shriram Fine Chemicals and DCM Shriram International in the December quarter. Simultaneously, he sold his stakes in TTK Healthcare and Denta Water.

The fall for Singhania came from a few key stocks over the last three months. IIFL Capital, which has over 10% weight in the portfolio, fell around 13% as trading volumes and deal activity weakened.

Mastek and Shriram Pistons, which together hold over 12% weight, also moved lower during the same period. Mastek dropped over 32% as IT stocks fell due to AI concerns, while Shriram Pistons slipped nearly 4%.

Ashish Kacholia added TechEra Engineering and Adcounty Media to his holdings, clearing smaller positions to make room.

Kacholia’s fall was driven by weakness in a few large holdings. Beta Drugs and Safari Industries, which together form about 12% of the portfolio, fell sharply over the last three months. Beta Drugs dropped nearly 31% as growth slowed after a strong run, while Safari Industries fell around 28% due to weaker demand in its luggage business.

High concentration leads to wealth erosion

Akash Bhanshali executed almost no changes to his holdings aside from a minor sale of Amber Enterprises. Nearly 30% of his total money rested entirely in Gujarat Fluorochemicals. This firm produces cooling system gases for global distribution.

Export demand for Gujarat Fluoro softened just as manufacturing costs for these gases rose. This squeezed margins and pushed the stock down 11% over the past three months. Since this single stock formed such a large part of his portfolio, the impact was significant.

Bhanshali lacked other stable investments to balance out this loss. His single-stock strategy worked in a rising market but turned into a drawback when the chemical sector weakened. Allocating too much money to one specific theme increased his overall risk.

Vijay Kedia adopted a different approach but got a similar result. He avoided placing one massive bet as Bhanshali did. Instead, he distributed his money among smaller stocks like Atul Auto, Neuland Laboratories, and Elecon Engineering. On paper, this seemed to be a safe mix of different companies.

However, most of these businesses depend on industrial demand. As the economic environment cooled, these companies faced pressure. This led to a 15% fall in his portfolio since the previous quarter. The mix appeared diversified, but did not protect against a sector slowdown.

Kedia attempted to adjust by acquiring additional shares in Patel Engineering and Om Infra. He also sold his stake in Precision Camshafts to free up cash. These changes provided little relief, as his new additions were also in the construction sector. Patel Engineering subsequently reported a 12% YoY drop in net profit in Q3FY26 as its cost of raw material increased.

True diversification offers better protection

Recent declines show that owning multiple stocks does not ensure safety. Madhusudan Kela experienced a 32% decline in his net worth over the past quarter. He maintained a small group of stocks that shared similar business risks. Attempting to sell these shares in a falling market reduced his returns further.

His decline was sharper because he lacked large, reliable companies to provide stability. Premji and Associates’ portfolio fell 28% over the last three months. However, the decline in their wealth was more gradual. Their investments reside almost entirely in IT giant Wipro, which has faced pressure from rising competition in AI-led tools.

Certain investors navigated the period with lower losses due to careful planning. The Rakesh Jhunjhunwala portfolio maintained relative stability throughout this market phase. Stocks like Titan and Canara Bank anchor this portfolio. These businesses held up even when the overall market weakened.

Superstar investors are not immune to market downturns, and their portfolios can also take a hit. But some boats took on more water.

The Baseline

12 Mar 2026

India’s solar boom runs ahead of the grid

By Anagh Keremutt

India’s solar sector is expanding at a record pace. But we have run into an unexpected problem: India’s power grid cannot absorb all the power being produced.

This has forced some solar plants to reduce production. Between May and December 2025, 2.3 terawatt-hours of solar energy went unused. That wasted power could have run 14 lakh homes for a year.

India is also making solar panels much faster than it can install them. Factories can produce 154 gigawatts of panels a year, but the country installed only 53 gigawatts in 2025.

India’s new tech is running into the wall of old, inefficient infrastructure. Ruchita Shah, energy analyst at Ember, said that the unused solar power highlights deeper problems in the grid. “Clean energy cannot scale efficiently unless the power grid can adjust to it,” she said.

This problem is becoming harder to ignore. In this edition of Chart of the Week, we examine why this is happening and how solar companies are changing their strategies to survive it.

The grid becomes the bottleneck

When the power grid gets overloaded, solar plants are forced to reduce production, but the government still has to pay these companies for the electricity they were ready to supply. In 2025, these payments reached nearly Rs 690 crore. Ultimately, this cost is passed down to consumers through higher electricity bills.

Part of the challenge comes from a pattern known as the duck curve. Solar generation peaks around midday when sunlight is strongest. Output then declines rapidly as night falls, just as household demand spikes. The grid must replace that lost solar power.

Coal plants add another complication. Most units cannot run below 55% of their capacity without risking a shutdown. When solar generation surges in the afternoon, coal plants cannot dial back their output enough to make room for renewable energy. To keep the system balanced, operators often have to cut back on solar and wind generation instead.

The government wants coal plants to operate more flexibly and run at 40% capacity. But power companies warn that running heavy machinery at low levels can damage equipment and shorten the life of older plants.

This creates a broader challenge. India plans to install 500 gigawatts of non-fossil capacity by 2030. But adding new power plants means little if the grid cannot use the electricity they produce.

“Renewable energy projects are built very quickly, usually within 18 months to two years. But transmission lines take longer to build, which creates a gap between how much power is produced and how much the grid can carry,” says Vibhuti Garg, Director for South Asia at IEEFA.

Falling behind on transmission

Transmission lines are critical for moving electricity across the country, but India is falling behind on the buildout. By December 2025, less than half of planned transmission lines had been completed. The country is now likely to miss its FY26 targets.

Shortages of equipment, such as transformers and rising costs are slowing several projects. Adani Green Energy faces this challenge at its Khavda project in Gujarat. The site aims to reach 30 gigawatts of capacity by 2029. So far, only about 7.7 gigawatts are operational. The rest of the project largely depends on new transmission lines being completed on time.

Ashish Khanna, CEO of Adani Green Energy, said, “We are ready to add more capacity at Khavda, but expansion depends on when the new transmission lines are completed.”

Several other projects have already received deadline extensions because transmission lines are not ready. Ameer Banu at India Ratings and Research said, “The majority of the capacity in Gujarat and the balance in Rajasthan are expected to benefit from such deadline extensions.”

While these extensions save companies from paying penalties, they do not solve the transmission shortage.

This slow expansion of transmission networks directly hurts demand for new solar equipment. Companies planning new solar plants cannot begin building them until they secure a connection to the grid. As a result, many are delaying their orders for solar panels. Because of this chain reaction, Indian manufacturers now have large stocks of unsold panels sitting in warehouses.

Oversupply and tariffs squeeze solar manufacturers

India’s solar manufacturing capacity has expanded 13 times since 2020 to about 154 gigawatts in 2025. Yet, domestic solar projects required only about 53 gigawatts of panels.

This gap has created a massive oversupply of solar equipment. Factory utilisation dropped to around 40%, down from roughly 70% in 2023. Idle production lines are costly for companies that recently invested billions in new factories.

Export markets are also becoming harder to access. The United States accounts for nearly 97% of India’s solar panel exports. Recently, the US imposed preliminary duties of up to 126% on solar cells and panels imported from India. These trade taxes make exports less competitive and push more unsold equipment back into the domestic market.

To bypass these barriers, some companies are shifting production overseas. Waaree Energies expects to expand its panel manufacturing capacity inside the United States from about 2.6 gigawatts to around 4.2 gigawatts by the end of the year.

Solar firms shift strategies to survive

Industry consolidation now appears likely. “Smaller manufacturers may struggle to survive as rising capital requirements and rapid technology upgrades reshape the sector,” said Girishkumar Kadam, senior vice-president at ICRA. Over time, only companies with efficient operations and advanced technology may endure.

Some firms are adjusting their strategies to avoid the congestion on the power grid. Tata Power is expanding rooftop solar to bypass the national transmission network. The company now serves more than 3 lakh rooftop solar customers, with over 4 gigawatts of installed capacity across India. Since the electricity is produced where it is used, it reduces pressure on the main transmission network. However, excess rooftop solar can still strain local transformers, which may require costly upgrades.

Other companies are diversifying into related businesses. Premier Energies is expanding into batteries, inverters, and energy storage systems to build new revenue streams. The company is also entering the transformer segment, which management expects to become a major growth driver.

Pressure is also building across the supply chain. Borosil Renewables, which manufactures solar glass, faces intense competition from low-cost imports from China and Malaysia despite existing duties. These imports make it harder for domestic producers to keep their factories profitable.

Many industry leaders now believe large-scale energy storage is the missing piece of India’s solar transition. Batteries can store excess solar power during sunny afternoons and release it later when demand rises. Until storage expands and the grid becomes more flexible, India risks continuing to waste part of the clean energy it produces.

The Baseline

09 Mar 2026

India reshapes its defence cycle, boosting key stocks

By Anagh Keremutt

War has returned to the centre of global politics. The United States and Israel recently struck civilian, infrastructure and military targets in Iran, triggering missile exchanges across West Asia and raising fears of a wider conflict.

These wars show how quickly modern militaries use up missiles, drones and air defence systems. US and Israeli forces used over 4,000 guided weapons to strike Iranian targets in the early phase of the conflict. Countries now want stronger domestic production instead of relying heavily on imports, because foreign weapons usually require licenses and ongoing payments to the original manufacturer.

The Indian government has allocated about Rs 7.9 lakh crore to the Ministry of Defence (MoD) for 2026–27, the largest share among all ministries. Much of this spending will fund new equipment, with most orders reserved for Indian manufacturers.

India has also faced its own security challenges. In 2025, Indian forces launched Operation Sindoor after a major cross-border terror attack. The operation underlined the need for faster domestic production of military equipment.

Recent policy changes now focus on execution. The draft Defence Acquisition Procedure 2026 (DAP) allows the government to check how busy a company already is before awarding large contracts.

In the Advanced Medium Combat Aircraft (AMCA) fighter jet program, the government used a 3x rule. Companies cannot lead the project if their order backlog is more than three times their annual revenue. Ashish Saraf, India head at Pratt & Whitney, said, “The new defence policy aims to buy equipment faster and focus on quality, not just the lowest price."

In this edition of Chart of the Week, we examine how these changes are reshaping opportunities across India’s defence sector.

Government prioritises execution capacity over legacy

The draft DAP 2026 focuses on execution capacity. It lets the government check whether companies already have too many pending projects.

The AMCA fighter jet program offers the first example of this backlog rule. The Rs 15,000 crore program aims to build India’s first fifth-generation stealth fighter jet for the Air Force.

Hindustan Aeronautics (HAL) currently holds an order book of about Rs 2.3 lakh crore. This equals more than 11 times its annual revenue based on the first nine months of FY26. Under the 3x filter, it cannot lead the AMCA program.

HAL can still participate in the project, but cannot lead the development phase. HAL may still provide testing facilities, but the lead private contractor will design the aircraft and own the technology.

The Defence Secretary did not disclose the firms shortlisted to lead the AMCA program. Sources said the contenders include private groups led by Tata Advanced Systems; Larsen & Toubro with Bharat Electronics and Dynamatic Technologies; and Bharat Forge with BEML and Data Patterns.

Akash Pratim Debbarma, defence analyst at GlobalData, said the move could reduce delays in India’s fighter jet program. “Separating AMCA from HAL’s already heavy workload reduces pressure on factories and suppliers, reducing the overall programme risk,” he said.

The policy encourages private-led consortia instead of single dominant PSUs. The rule applies mainly to the lead contractor. Other companies can still participate as partners.

This change favors companies that still have capacity to execute new projects.

Component makers drive the next phase of defence growth

Electronics suppliers are beginning to shape the next phase of defence production. Modern military platforms increasingly depend on electronics. The 2026 defence budget reflects this trend. The government increased defence capital spending by about 22% YoY to fund new equipment and upgrades.

Amit Anwani, Lead Analyst at PL Capital, said modern warfare now depends heavily on surveillance systems, radars and electronic equipment. “Building layered defence networks will require sustained research spending,” he added. The government has allocated Rs 29,100.3 crore for defence research and development, with the Defence Research and Development Organisation (DRDO) leading the effort along with startups.

Bharat Electronics (BEL) plays a central role in this shift to defence electronics. The company supplies radars, communication systems and sensors used in aircraft, naval vessels and land platforms. As India builds more defence equipment, these systems are integrated across many platforms.

BEL has also joined Larsen & Toubro and Dynamatic Technologies in a private consortium bidding for upcoming defence production programs.

Data Patterns is benefiting from the same shift. Its order book grew 71% over the past year. The company designs radars, electronic warfare systems and avionics used in aircraft, missiles and surveillance platforms. These products require specialised design and engineering and typically earn higher margins than basic metal parts.

Chairman and Managing Director S Rangarajan said, “The company is moving from a subsystem supplier to a full systems and solutions provider.” This transition requires higher research spending because the company is developing more of its own technology instead of relying on imported designs. Costs rise initially, but margins improve later as the same technology is used across multiple products.

For years, defence investors focused mainly on order books. The next phase may depend more on delivery and technological capability. HAL and Bharat Dynamics already have large backlogs and are working through existing orders. Companies such as BEL and Data Patterns could see stronger demand as defence equipment becomes more electronics-driven.

Duty cuts support India’s defence manufacturing expansion

Policy changes are improving the economics of defence manufacturing. The government has removed the 7.5%-15% basic customs duty on raw materials used to produce aircraft parts. These import taxes had increased production costs for domestic suppliers

Lower input costs support margins as production volumes rise. Azad Engineering, which supplies components for fighter jet engines, could benefit as aircraft manufacturing scales up. The duty removal helps the company control input costs while increasing output.

PTC Industries is expanding its aerospace materials business through its Aerolloy segment, which produces titanium castings for aerospace engines. The segment reported 126.8% income growth during the first nine months of FY26. Duty exemptions strengthen its cost advantage in domestic engine material production.

Munitions manufacturers are also scaling up. Solar Industries’ defence order book has nearly tripled since last year, while defence revenue rose 72% in Q3FY26. The company plans to begin supplying Pinaka rockets from Q4, which could further increase defence sales. International operations are also expanding, with overseas markets contributing about 40% of quarterly revenue.

Still, fully owning advanced defence technology is difficult. Ashish Saraf said, “Efforts to completely own foreign technology may not always succeed because countries rarely share their most advanced systems. In many cases, working with global partners may prove more practical.”

Ultimately, the companies that deliver projects on time will benefit most. Defence spending is rising, but procurement rules and delivery timelines will determine where the contracts go. Investors may need to look beyond headline order books and focus on companies that can deliver projects on schedule while maintaining profitability.

The Baseline

26 Feb 2026

Profit expectations across industries grow more sensitive to costs

By Anagh Keremutt

Earnings season commentary often focuses on whether companies beat or miss estimates. And this season produced massive profit surprises: some companies reported numbers far above expectations, while others saw earnings collapse. At the aggregate level, Nifty 500 earnings grew 19% YoY, while sales rose 11%, the highest growth in 11 quarters.

But analyst reactions were surprisingly muted, and disconnected from the scale of the surprises. Their full-year estimates barely moved in many cases. This disconnect between large surprises and limited estimate revisions suggests that much of the change was driven by costs, rather than underlying changes in demand.

Input costs have become unpredictable in recent quarters, making profit forecasts less stable. Companies can deliver steady sales yet still face earnings weakness if expenses drift higher.

Axis Direct highlights this, noting that “margin upside was largely priced in.” Strong quarterly numbers alone were often not enough to lift full-year forecasts. Motilal Oswal observed that “the earnings upgrade-to-downgrade ratio has been adverse at 0.7x,” with downgrades continuing to outnumber upgrades.

In this edition of Chart of the Week, we look at how EPS surprises influenced FY26 estimates.

Tight wallets: Cost discipline driving positive surprises

Estimate revisions this quarter were limited, despite large earnings surprises. Five of the companies that beat EPS estimates by a huge margin saw downward revisions in estimates, while the remaining two saw no change.

Prestige Estates and Bank of India did see revenue upgrades, but Bank of India’s change was barely noticeable. Prestige Estates was the sole exception, and was the only meaningful gainer with larger revisions.

JSW Steel’s earnings beat expectations, but the numbers got a boost from a deferred tax asset. EBITDA per tonne actually declined by 19% amid softer steel prices. FY26 EPS forecasts were lowered by 10% to Rs 36.6. Joint MD and CEO Jayant Acharya cautioned, “Raw material costs remain volatile, particularly coking coal.” Coal remains a key cost for steel producers, and even small price changes can quickly alter margins.

Amber Enterprises’ EPS beat was mainly driven by revenue growth in the electronics division and margin expansion, which helped absorb pressure from input costs. Yet, FY26 EPS estimates stay broadly flat.

Jasbir Singh, Executive Chairman & CEO at Amber, noted that the room air-conditioner industry is looking flat this year. “We remain cautious about a surge in commodity costs and currency depreciation,” Singh said. “We continue to see margin pressure in the bare printed circuit board vertical,” he added.

Strong home sales and cash inflows drove Prestige’s outperformance in Q3FY26 as pre-sales rose 39% and collections totalled Rs 4,548 crore. Analysts raised FY26 revenue forecasts by over 4%. EPS estimates edged down to Rs 32.4 as management flagged margin variability tied to land, construction, and approval costs.

Netweb stands out for the scale of its surprises, with revenue and EPS beating estimates by 72.6% and 77.3%, respectively. This was mainly due to the completion of a Rs 450 crore order. FY26 estimates, however, remained largely unchanged as CEO Sanjay Lodha stated, “Quarterly numbers can fluctuate, and performance is better judged over a full year,” implying the strong quarter will not significantly change the full-year outlook.

Bank of India’s FY26 EPS estimates slipped around 2% to Rs 21.7 despite an EPS beat of 74.2%, reflecting pressure from softer net interest margins, despite asset quality remaining healthy and credit costs improving, as noted in a Geojit report.

Welspun Living reported an EPS beat of around 650%, though the magnitude is distorted by near-zero estimates. Importantly, EBITDA exceeded expectations by 16%, resulting in a positive surprise of Rs 22 crore. This was sufficient to cushion the Rs 19 crore labour code charge, supporting the EPS outcome.

Projected EPS for FY26 edged down to ~Rs 1.8 as CEO Dipali Goenka also noted that demand conditions remain uneven, raising doubts about whether recent margins can hold. Anything pointing to a structural slowdown is being downgraded quickly.

EPS misses drive aggressive earnings downgrades

Analysts shrugged at positive surprises. But negative surprises triggered sharp reactions.

Aditya Birla Real Estate reported an EPS loss of Rs 6.6 in Q3FY26, against expectations of a Rs 2.8 profit. Revenue missed estimates by more than 60%. The shortfall was due to timing rather than sales weakness. The company records revenue only when project milestones are completed, and limited milestone completions this quarter constrained revenue, while costs rose. FY26 earnings outlook turned negative, with EPS now expected at a loss of Rs 13.5. Motilal Oswal cited weaker operating trends and slower growth visibility.

Piramal Pharma was expected to post a small loss of Rs 0.1 per share in Q3FY26 but reported a wider loss of Rs 1 per share. Revenue was slightly below estimates. The shortfall was largely driven by destocking in the CDMO business. FY26 earnings expectations also turned negative. Brokerages pointed to margin pressure and weaker profitability assumptions.

Signature Global’s EPS missed estimates by more than 150%, as sales slowed sharply during the quarter. The weakness was driven by lower bookings and fewer units sold amid softer market conditions. The disappointing operating performance led analysts to cut FY26 expectations, reflecting weaker sales momentum.

Tata Chemicals reported an EPS loss of Rs 3.6 in Q3FY26 against estimates of an EPS profit of Rs 4. It saw only a modest cut to revenue estimates, down about 2.5%. EPS forecasts, however, more than halved to around Rs 11.1. The downgrade followed a collapse in Chinese soda ash prices, which management noted have fallen about 54% over three years, alongside an exceptional Rs 54 crore labour code impact.

Recent labour code changes are increasing fixed employee costs across sectors. Basic wages must now account for at least half of total compensation, with excess allowances added back to the wage base. This mechanically raises statutory payouts such as provident fund contributions even without salary hikes, reducing cost flexibility and making margin recovery harder.

The episode highlights a broader shift. Wage rules are tightening and input costs remain volatile. As a result, profit expectations are changing faster than sales forecasts.

This backdrop explains why earnings upgrades have remained limited while downgrades have been sharper. As FY26 approaches, quarterly beats may offer less signal than before. Worth watching going forward is how well companies protect margins in a persistently higher cost environment, especially as labour costs become less flexible.

The Baseline

12 Feb 2026

After a tough 2025, the Indian rupee may be finding its balance

By Anagh Keremutt

For much of 2025, the Indian rupee weakened, despite a healthy economy. India has seen GDP growth that’s among the highest in the world, inflation has eased, and expectations are upbeat. RBI Governor Sanjay Malhotra said that the economy is in Goldilocks mode, with most indicators looking great. But uncertainty was a party spoiler, as it increased dollar demand and put pressure on the rupee. The RBI under the new governor also became less interventionist in defending the rupee, and focused mainly on limiting volatility.

By end-2025, the rupee had slipped past Rs 91 per dollar and hovered near record lows, making it one of Asia’s weakest currencies. US rate signals, geopolitical risks, and cautious investor sentiment triggered fresh selling each time.

It’s early, but 2026 looks different. The US–India trade deal cut tariffs on Indian goods, lifting a key drag on the rupee. India’s $500 billion import pledge to the US sets a clear five-year trade path towards more openness and reduces uncertainty. Foreign investors have returned, and the rupee strengthened toward the 90 range.

Following the India–US trade agreement, Bank of America lifted its near-term rupee forecast by about 2% to around Rs 89 per dollar. “Rupee was under pressure due to the outflows in the last month, and I think that should stop,” said Vikas Jain, head of India fixed income, currencies and commodities trading at Bank of America.

Currently, the rupee is down 4.3% over the past year and continues to lag most Asian peers.In this edition of Chart of the Week, we see the structural forces behind the rupee’s slide and the policy shift under new central bank leadership.

The rupee stayed under pressure in 2025, but 2026 looks different

The rupee’s weakness in 2025 was largely from global factors rather than domestic fundamentals. India’s growth outlook remained intact, but external conditions worked against the currency through most of the year.

Tariffs and the souring of the Modi-Trump relationship didn’t help In 2025, tariffs on Indian goods were raised to 50% in response to continued Russian oil purchases. This reduced export competitiveness and weakened visibility on future export orders and dollar inflows. Foreign investment outflows added to the pressure. As US interest rates remained higher for longer, global investors reduced exposure to emerging markets. India saw $18.9 billion of foreign portfolio outflows in 2025, increasing dollar demand and keeping the rupee under strain.

Asia added another layer of stress. Japan’s shift toward tighter monetary policy led to an unwinding of the yen carry trade. Investors who had borrowed cheaply in yen and invested in higher-yielding markets, including India, began withdrawing funds. This hit the rupee at a time when it was already under pressure.

The trade deficit widened as high crude oil prices and gold imports pushed up India’s import bill. Services exports and remittances continued to provide support, but they could not fully offset the goods trade gap. Finance Minister Nirmala Sitharaman confirmed that currency movements were driven primarily by global uncertainty and trade disruptions rather than domestic weakness.

RBI keeps a light touch, intervening only when needed

One of the most important changes in 2025 has come from the Reserve Bank of India. Under Governor Sanjay Malhotra, the central bank has shifted from defending exchange-rate levels to a looser approach: managing volatility.

In earlier episodes of rupee stress, the RBI intervened actively to slow depreciation. While this offered short-term relief, it also encouraged markets to test perceived comfort zones, increasing the long-term cost of intervention.

The current approach is different. The RBI has made it clear that it is not targeting a specific exchange rate for the rupee. Intervention is reserved for disorderly movements, not routine weakness. As Governor Malhotra said, “We allow the markets to determine prices and don’t target any level. Intervention is only to curb abnormal volatility”

With no clear level to defend, traders are less willing to take aggressive one-way positions. This approach is supported by strong reserves. India’s foreign exchange reserves of $723.8 billion cover more than eleven months of imports. Even as RBI gold purchases slowed to an eight-year low, a $137 billion gold-heavy buffer backed by record holdings of 880.2 tonnes gives the RBI greater capacity to manage shocks and supply dollars during periods of stress.

Higher gold valuations have given the RBI greater flexibility to absorb currency stress without heavy dollar sales. The message from the February 2026 policy meeting was consistent: stability matters more than levels. While this stance has not strengthened the rupee outright, it has reduced panic and helped anchor expectations after a volatile year.

Trade deals have changed the tone in 2026

If RBI policy helped steady the rupee, trade developments helped change market perception.

The India–US trade framework has marked a clear turning point. Tariffs that had risen to approximately 50% were reduced to approximately 18%, thereby restoring export competitiveness. More importantly, the deal improved predictability, giving exporters clearer visibility on pricing, volumes, and market access.

Markets responded quickly. After spending months near its weakest levels, the rupee recovered toward Rs 90 per dollar following the announcement. The move was driven less by speculative flows and more by expectations of trade-linked dollar inflows.

Progress on the India–EU free trade agreement added further support. While benefits will emerge gradually, the agreement will improve access to a broad range of Indian goods. For currency markets, this matters because trade-linked inflows tend to be more stable than short-term capital flows.

As a result, the rupee traded in a narrower range through early 2026. The improvement was modest, but the driver had changed. Trade, rather than sentiment, has begun setting the tone.

What comes next: stability over strength

At its February 6 meeting, the RBI unanimously held rates at 5.25% with a neutral stance and raised its FY26 GDP growth forecast to 7.4% while upgrading early FY27 estimates. Strong growth attracts foreign direct investment, which is more stable than portfolio flows and helps fund the trade gap. This keeps the rupee steady in 2026, balanced rather than bullish.

At the same time, execution risks remain. Trade agreements must translate into actual export volumes. Any slowdown in global demand, delays in implementation, or logistical constraints could test current stability. Fiscal discipline will also remain a focus, with markets monitoring tax collections and spending trends.

Several global banks expect the RBI to remain comfortable with gradual depreciation over time, especially if it supports export competitiveness. Forecasts pointing to Rs 91–92 by late 2026 reflect policy tolerance rather than renewed stress. As UBS noted, “Short-term support for the rupee is limited because the central bank will use strength to build reserves, keeping some pressure on the currency.”

After a difficult 2025, the currency is no longer reacting blindly to every global shock. The shift from defending levels to managing stability has changed market behaviour. Whether this holds will depend on trade execution and policy.

The Baseline

05 Feb 2026

Buybacks after the tax reset: What has changed?

By Anagh Keremutt

When a company repurchases its own shares, it returns surplus cash rather than investing it elsewhere. This can signal confidence in the business, but it can also reflect limited near-term expansion opportunities. In India, buybacks remain uncommon and are usually limited to a few large companies each year.

In contrast, US companies routinely use buybacks as a capital-return tool. Companies repurchased over $1 trillion of shares in 2025, as investors expect regular cash returns and firms use buybacks to support earnings per share and stock prices through flexible payouts.

In 2024, Bajaj Auto executed a Rs 4,000-crore buyback, the largest of the year. In 2025, Infosys made headlines with a Rs 18,000 crore buyback. Overall, 15 companies repurchased shares worth Rs 19,749 crore in 2025, with Infosys accounting for the majority.

After the Union Budget 2024, the buyback tax shifted from companies to investors. So when you sold your shares back to the company, the money you received was taxed like a dividend, based on your income tax bracket. For large investors (promoters) in the highest tax bracket, this meant paying around 39% or more in tax. It made buybacks less appealing.

New changes in 2026-27

The Union Budget 2026–27 has changed this. Now, money from a buyback is taxed as capital gains rather than dividend income. Replacing the dividend-based system introduced in 2024 makes the taxation fairer and more transparent. It encourages investors and companies to pursue buybacks for business reasons without being heavily penalized by high taxes.

Amit Gupta, Partner at Saraf and Partners, explained, “Earlier rules taxed the entire buyback amount as dividend income to stop big investors from misusing it, but it also hurt regular investors by taxing their invested capital.”

He noted that while the tax is still paid by investors, “treating buybacks as capital gains allows investors to deduct what they originally paid for the shares”.

In this edition of Chart of the Week, we examine how capital-gains taxation of buybacks affects promoters and public shareholders differently, and why buybacks are still popular as a cash-return tool.

How buybacks were taxed, and why it mattered

Under the 2024–25 regime, buyback proceeds were taxed as dividends in the hands of shareholders at their income-tax slab rates, often exceeding 30%. Since the tax applied to the full amount received, investors effectively paid tax even on the return of their own original capital.

Many investors faced difficulties because they could not offset the cost of their shares against this dividend tax. Instead, the system recorded a “capital loss” that investors could carry forward only to offset future capital gains, not the immediate buyback tax.

This marked a sharp break from the pre-2024 system, in which companies had paid a flat ~23% tax and shareholders received buyback proceeds tax-free. While the 2024 change aimed to tax promoters at their personal slab rates, it inadvertently turned buybacks into one of the most heavily taxed forms of capital return globally.

Although the 2024 structure succeeded in closing a perceived “tax loophole”, it also distorted payout decisions by making buybacks more expensive for major shareholders than straightforward market sales.

What the new tax framework changes

Under the 2026–27 Budget, the government no longer treats share buybacks as dividends. From April 1, 2026, investors will not face the earlier 10% tax deduction at source on buybacks. This change puts more cash directly in the hands of resident investors and makes buybacks simpler to understand and receive.

The tax now applies only to the actual profit—the difference between the buyback price and what the investor paid for the shares. Long-term gains face a 12.5% tax (with an annual exemption of up to Rs 1.25 lakh), while short-term gains are taxed at 20%. These rates replace the earlier slab-based taxes that often crossed 30%. Retail investors benefit because the tax no longer applies to money that simply returns their original investment.

For promoters, the change restores balance while closing tax loopholes. Any shareholder with a 10% or higher stake is treated as a promoter and pays an extra levy. This lifts the effective tax to about 22% for corporate promoters and 30% for individuals and NRIs, keeping their tax burden close to earlier dividend levels.

Kunal Savani, Partner at Cyril Amarchand Mangaldas, noted, “While the shift to capital gains is a relief, promoters may still pay a higher overall tax than retail investors due to surcharges, resulting in a more layered tax outcome for controlling shareholders.”

Why buybacks will still remain relevant

By removing the dividend-tax “penalty”, the new regime restores the economic logic of buybacks. Companies can continue to use buybacks effectively when their shares trade below intrinsic value. By reducing the number of outstanding shares, repurchases lift earnings per share and improve returns for remaining shareholders.

Plus, companies no longer face the “double-whammy” of taxing capital returns as income. Firms with surplus cash, strong balance sheets, and confidence in their valuations will continue to use buybacks to optimize capital structures.

Recent trends support this. Software and IT services companies accounted for about 40% of buyback activity in 2025. Their cash-heavy balance sheets, low reinvestment needs, and flexible payout preferences make buybacks a natural choice even under the new tax rules.

Amit Chandra, vice-president at HDFC Securities, said, “IT services companies may increasingly opt for buybacks, as they now benefit not only retail investors but also corporate promoters, who can now offset their cost of investment.”

The tax reset improves the quality of capital-return decisions. Dividends continue to provide steady payouts, while buybacks now serve their intended role as tools for capital optimization and valuation signaling.