High oil prices biggest risk to corporate earnings: Anupam Tiwari, Groww MF

Tiwari says a sustained rise in crude oil prices could have implications for inflation, the fiscal position and corporate margins, and could consequently weigh on the broader earnings outlook.

Anupam Tiwari, Head of Equities at Groww Mutual Fund

Puneet Wadhwa New Delhi

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As markets prepare for the September 2026 quarter (Q2-FY27) earnings season, Mumbai-based Anupam Tiwari, Head of Equities at Groww Mutual Fund, told Puneet Wadhwa in an email interview that any sustained up move in equities going ahead will need to be supported by a broad-based and sustained improvement in earnings. Edited excerpts:Indian equities have delivered muted returns despite strong domestic liquidity. How long do you see this phase continuing? Domestic liquidity has provided an important support to equities, but liquidity alone cannot sustain returns indefinitely if earnings growth does not keep pace with expectations. We have seen some improvement in earnings over the last few quarters, with early green shoots emerging across parts of the market. However, the ongoing conflict in West Asia has added another layer of uncertainty around the pace of earnings recovery, particularly given India's dependence on imported energy. A sustained rise in crude oil prices could have implications for inflation, the fiscal position and corporate margins, and could consequently weigh on the broader earnings outlook. Ultimately, any sustained up move in equities will need to be supported by a broad-based and sustained improvement in earnings.Can money shift out of risk-on assets to safer asset classes amid headwinds? If so, where? As far as money shifting to other asset classes is concerned, we have observed that prolonged periods of muted equity returns can lead investors to look towards other asset classes, including debt and precious metals. However, we firmly believe asset allocation should be driven by an investor's defined objectives, risk appetite and time horizon, rather than short-term market performance.ALSO READ | India not exciting FIIs; headwinds not fully priced in: Nitin Bhasin of AmbitIndia's earnings expectations have been repeatedly trimmed in some sectors. What is the biggest earnings risk for FY27 and FY28 that the market is not fully pricing in? The biggest risk, in our view, is a sustained increase in oil prices. Higher energy costs can have a broad-based impact on the economy. The combination of weaker consumption, higher inflation, and potential moderation in government capex and margin pressure could therefore create a broader earnings headwind if elevated oil prices persist.Where do you see the biggest disconnect between price and fundamentals today? We think large-caps are still not as cheap as they are sometimes made out to be. Increasing competition from new entrants, relatively lower investments in research & development (R&D), and intensifying competition even among established large-cap companies could put further pressure on valuations in some segments. As far as growth versus value is concerned, we look at the stock market as a multi-factor, complex and evolving system, and believe this requires an optimisation-based approach to navigating the growth-value trade-off.Do you see SIP flows remaining resilient if equity returns stay subdued for an extended period? Which category of funds are likely to attract most flows? SIP flows have increasingly become a part of investors' regular financial planning, and this should provide some resilience even during periods of subdued equity returns. In fact, periods of muted returns can allow disciplined investors to accumulate more units, provided their investment horizon and asset allocation remain unchanged.ALSO READ | Rich valuations, elevated crude narrow equity opportunities: Andrade That said, a prolonged period of weak returns could eventually affect investor sentiment and lead to some moderation in equity flows. We could see greater interest in categories that offer diversification and a balance between growth and volatility, including multi-asset and hybrid strategies. However, given that India's long-term economic trajectory remains intact, we do not expect a major drop in interest in equity funds despite any near-term moderation in flows.Mid- and small-caps have outperformed over the past few years, but concerns around valuations and earnings quality remain. Has the risk-reward in this segment changed materially? Mid-and small-caps have certainly outperformed over the past few years, but we believe it may not be appropriate to look at the entire segment as one homogeneous category. These segments are highly diverse, with a wide range of sectors and companies, each with different business models, earnings profiles and growth prospects. While there has been an up move across parts of the segment, we continue to believe there are opportunities for active stock picking.How sensitive will the markets remain to elevated bond yields? Do you think they will eventually become immune after a few rounds of corrections in equites? As yields remain elevated, markets are likely to remain sensitive to movements in rates, especially in segments where valuations are more dependent on long-term growth expectations. However, the relationship is not static. If elevated yields persist for long enough, markets can gradually adjust to the new level, and the sensitivity to incremental movements in yields may reduce. We do not expect equities to become completely immune to bond yields. Ultimately, what matters is not just the absolute level of yields, but the direction of yields, the underlying reason for the move.ALSO READ | 'High US bond yield not a reason to be negative on Indian equities'Thematic funds have become increasingly popular as investors look to play structural themes such as manufacturing, defence, consumption and AI. Is the story overdone? Structural themes such as manufacturing, defence, consumption and AI can create meaningful long-term opportunities, but a strong structural story does not necessarily translate into an attractive investment opportunity across every company or valuation. As themes gain popularity, expectations can get reflected in prices well before the underlying earnings fully materialise. Well-informed investors may consider taking some exposure to specific themes as a satellite allocation within their overall portfolio. However, for most retail investors, taking an oversized position in thematic funds may not be advisable given the concentration and volatility involved. They may be better served by fairly diversified products such as a multicap fund or a multi-asset allocation fund, which can provide exposure across companies, sectors and asset classes.