Market has already priced in peace; now comes the earnings reality check: Shridatta Bhandwaldar

Markets have a habit of running ahead of reality. Right now, Shridatta Bhandwaldar, CIO, Equities at Canara Robeco AMC, believes that is exactly what is happening — and investors need to be honest about what that means for the quarters ahead.

What the market is betting on

Just a month ago, when the Nifty had fallen as low as 22,500, the market was pricing in a prolonged conflict. Today, with indices rebounding sharply, it is pricing in a swift resolution. Bhandwaldar's base case sits somewhere practical: a truce within one to three months, with near-term macro pain that does not permanently derail India's earnings recovery.

"Market always tends to go ahead of itself on both sides," he said. The current optimism is not irrational — there is genuine geopolitical and economic pressure on both parties to eventually reach a settlement. But with crude still at $100 and the Strait of Hormuz situation unresolved, the first quarter of the new financial year will almost certainly show the impact of elevated energy costs in corporate margins.

Earnings recovery is real — with one big caveat

Talking to ET Now, Bhandwaldar was unambiguous about the current earnings season: it has delivered more positive surprises than disappointments, across largecap, midcap, and smallcap alike. After six consecutive quarters of earnings downgrades, the cyclical recovery that began last quarter is now visibly accelerating.

Market consensus had pencilled in 15–16% earnings growth for FY27. Bhandwaldar says that number holds — but only if the conflict resolves quickly. A prolonged war introduces both margin pressure from raw material costs and volume pressure in energy-sensitive sectors, which would force those estimates lower. The recovery is real, but it is not yet immune to external shocks.

Where the risk-reward is still favourable

Asked where to position in this environment, Bhandwaldar sliced the market two ways.

By market cap, he pointed to largecaps — particularly financials and parts of auto — as still attractive. These segments have underperformed because of sustained FII selling, not because of any fundamental deterioration. That underperformance, he argued, is precisely what makes them interesting now.

By sector, his preferred spaces for the next 12 months are pharma, telecom, select industrials, and select financials — areas where risk-reward remains compelling even after the recent rebound from March lows.

Defence: Still constructive, but now stock-specific

Canara Robeco has been bullish on defence for two to three years, and the structural thesis — indigenisation, expanding order books, global conflict-driven demand — remains intact. But Bhandwaldar was candid about valuations. With the defence index already up 18% year-to-date, the broad-based tailwind is increasingly reflected in prices.

His approach has shifted. Rather than owning the sector as a theme, his team is now hunting for specific stocks within defence and the broader industrial space where earnings have not yet caught up with the sector average — companies where re-rating still has room to run. "More bottom-up selection," as he put it, rather than top-down sector calls.

The energy transition play no one is talking about

On energy, Bhandwaldar offered a characteristically indirect route. Rather than buying utilities or power generators directly, he prefers the equipment layer — specifically transmission and distribution companies and cable manufacturers. These businesses indirectly capture the same energy transition thesis — renewables, thermal, wind — but with superior capital efficiency, higher growth rates, and genuine technological differentiation.

In a market where the obvious trades are crowded, that kind of second-order thinking may be exactly what FY27 demands.