Earnings season is strong, but Q1 pain is coming: Dipan Mehta

Halfway through what has been an unusually clean earnings season, veteran market watcher Dipan Mehta is pleased — but not complacent. The Director of Elixir Equities told ET Now that while the current quarter has delivered broadly strong numbers across sectors, the real test arrives in June and September, when the full weight of the Iran-US war's disruptions hits corporate India's raw material costs and consumer sentiment.

"Apart from software services, there is hardly any company or any sector which has disappointed in a serious way," Mehta said. "It is a great earning season." But in the same breath, he warned that management commentaries are structurally optimistic — in 35 years of market experience, he says, no management openly warns of rough quarters ahead.

The one number he's watching

Before going on air, Mehta checked crude oil prices. They were down 7%. That single data point, he explained, is the market's most important signal right now. If the Strait of Hormuz reopens and crude falls back below $80 — a scenario made more likely with Venezuelan supply returning — investors will treat the current disruption as a blip, skip past June quarter weakness, and move on. If the war drags, the damage shifts from short-term to structural.

Where he's putting money: Pharma first

Mehta's highest-conviction call is pharma, and he sees multiple engines running simultaneously. The CDMO structural shift is benefiting niche players like Neuland Laboratories, OneSource, and Cohance. The GLP-1 and weight-loss drug opportunity is drawing Indian manufacturers into a fast-growing global market. And the rupee's depreciation is padding margins for the sector's large export base.

"After this earning season, you will find many pharma companies are trading at attractive valuations compared to what their growth potential is," he said, flagging it as a sector worth being overweight on.

Specialty chemicals: The long-awaited upcycle

After multiple quarters of sideways-to-declining performance, Mehta believes specialty chemicals may finally be entering an upcycle. He called out Aarti Industries — whose management gave strong guidance for 25–30% growth over the next two to three years on the back of a major new contract — along with Navin Fluorine, whose CDMO business has scaled meaningfully, and SRF, whose numbers were well-received by the street.

The caveat: raw material supply chains remain disrupted by the Iran conflict. But with Indian companies having expanded capacity significantly and the rupee working in their favour, Mehta's advice is simple — buy a basket of quality large-cap specialty chemical stocks and be patient.

Cable stocks: Good business, stretched valuations

Mehta is more measured on the cables and wires sector. He acknowledges the demand story is real — data centres, power distribution, urbanisation, and export market expansion are all genuine tailwinds. But he flags valuations as stretched for industrial B2B companies at current levels, pointing to KEI Industries' mild earnings disappointment as a preview of what misses can do to premium-priced stocks.

His preference within the broader power equipment theme: solar, wind, and transformer companies. He specifically called out Voltamp's recent correction as a potential entry point, given what he sees as exceptional long-term fundamentals for transformer demand.

Auto: Overweight, but don't chase

April auto sales surprised him positively despite oil price fears. His preferred names are Hero MotoCorp — the cheapest two-wheeler play, gaining market share, and showing early export momentum — M&M, and Eicher Motors, in which his firm holds positions. He remains overweight on auto but would prefer to add on dips rather than at current levels.