After a volatile phase marked by valuation resets and uneven returns, market focus is shifting back to earnings visibility and sector leadership. Axis Mutual Fund’s Shreyash Devalkar outlines where he sees selective opportunities emerging as growth stabilises and domestic demand themes regain traction in the coming quarters.

Edited excerpts from a chat:

The year 2025 saw supply pressure from IPOs and promoter selling absorb a bulk of domestic demand. Do you think the new year would see similar supply-side pressure leading to subdued returns?
After a couple of strong years for the primary market, a phase of moderation seems inevitable. Nearly 100 IPOs have hit the market in 2025 alone. As per media reports, there is already a strong pipeline. The supply has affected returns, however, on the flip side it also helps in normalizing excesses in the valuations in overall listed space, along with providing opportunity to invest in businesses which were not available in the listed space.

**What is the kind of earnings expectations that you are banking on for the market across major sectors for Q3? Would it be better than Q2?
**We believe earnings have bottomed out, and the trajectory from here looks more constructive. While it may take a few quarters for the upgrades to start showing up, the pace of earnings downgrades has already slowed, signaling stabilization. The bulk of incremental growth could be broad based from autos, financials, power, and consumer sectors, supported by a low base effect and favorable policy measures. Early signs of recovery are visible in domestic consumption plays—autos and some discretionary segments, aided by volume upticks following recent GST rate cuts and the resulting operating leverage.

What is the market's expectation from the Budget? Are we going to see higher allocation towards rail and infra? There has been a clear push towards consumption rather than capex-led growth in the last one year.

In 2025, the government’s reform agenda clearly leaned towards boosting consumption. Measures such as lowering income tax rates and rationalizing GST have enhanced disposable income, encouraging higher spending across segments. These steps have provided a much-needed lift to demand at a time when growth impulses were uneven. Beyond fiscal tweaks, structural reforms like the implementation of labour codes signal a long-term commitment to improving workforce conditions and productivity. Notably, two of these key reforms were introduced outside the budget cycle, underscoring the government’s intent to revive weaker areas of the economy proactively.