When asked about the current trajectory, Trideep Bhattacharya from Edelweiss AMC offered a measured outlook, suggesting that the worst phase of uncertainty may already be behind us.
“So, in my opinion, in most logical circumstances we have probably seen the worst of the war in the sense of worst of the uncertainty. While the exact deal, the nature of it is still pending and will take time to evolve over time, we have seen the worst of it and that is our base case,” he said.
He emphasized that the base case scenario points toward a gradual normalization by the end of April. “The base case is that by the end of April most of war-related uncertainty is resolved and we gradually live back to normalcy because some of the energy infrastructure will take a bit of time to normalise but the market will discount once it knows that the worst point of the event is over.”
However, he cautioned that risks remain if key developments fail to materialize. “The reason why it is vacillating around the higher level of the mark that you are talking about is we do not seem to find yet a common ground of understanding between the warring parties and that is necessary, by the way, before we end April. If it does not happen… the way to keep track of this is if oil price stays above 100 for a period of three months, which means March, April and May put together, then the negative scenario starts playing out on the economic front which will be global in nature. India will also go through its impact.”
Bhattacharya summarized the outlook succinctly: “The base case is the majority of the event ends in April. The earnings impact is manageable and we go back to where we started the warlike scenario. But if it were not to happen, oil stays above $100 for three months… then economic circumstances is something that we need to be prepared for.”Midcaps and Smallcaps Regain Investor InterestRecent weeks have seen renewed buying in midcap and smallcap stocks, a trend Bhattacharya views positively.“We have been positive. We have been positive on this space because on a relative basis we find the valuations during this correction for both mid and smallcaps have actually reached a five-year low versus broader markets,” he noted.
He added that valuation excesses have normalized, making these segments attractive again. “Structurally we feel that this end of the market, particularly the midcap end of the market, is that part of the market where we have relatively stronger business models that are gaining market share and… have better earnings growth.”
With valuations now at more reasonable levels, he believes gradual allocation into these segments makes sense.
Energy Theme Gains ProminenceEnergy, particularly the power sector, has emerged as a dominant theme in recent months. Bhattacharya highlighted that this trend predates current geopolitical tensions.
“Power overall is a segment where we have been positive on… because as a growing economy the energy needs of the economy kind of grows multi-fold more than just the GDP,” he explained.
India’s economic ambitions will require significant expansion in power generation, transmission, and distribution. He also pointed out that the ongoing conflict has underscored the importance of energy diversification.
“This war… has put this issue right in the forefront that we need to look at how do we have multiple sources of energy so that we are not too much dependent on the Strait of Hormuz or any particular channel.”
Sector Rotation: Financials, Power, and Capital Goods LeadLooking ahead, Bhattacharya identified three key sectors where his outlook remains positive.
“We are overweight on three areas where we think demand is relatively insulated,” he said.
First, financial services stand out as credit growth shows signs of recovery. “We think that clearly credit growth has bottomed out and over the next three, six, nine months we will see credit growth move up to somewhere between 14% to 16% and as a play on the same financial services is a good place to be.”
Second is the power sector, which continues to benefit from structural demand trends.
Third, capital goods—particularly short-cycle segments—are expected to gain from post-conflict rebuilding activity. “As we come out of this conflict and as the rebuild phase starts to happen, you will see some of the capital goods companies benefit from the same.”
On the flip side, he remains underweight on telecom, utilities, and parts of the oil and gas sector following their recent rally.
Financials: Moving Down the Market Cap CurveWithin financials, Bhattacharya suggests taking a broader approach.
“So given that it is a rising tide right now within financials where liquidity is decent, where credit growth is bottoming out, it makes sense to take a bit of risk within financials,” he said.
This includes exploring opportunities beyond large private banks. “Which means going down the market cap chain in the context of private sector banks, also maybe PSU banks and some NBFCs. And finally I would say capital markets is another place where we have been structurally positive.”
IT Sector in TransitionOn the technology front, Bhattacharya struck a cautious tone, describing the sector as being in the midst of a structural shift driven by artificial intelligence.
“So, strong is not the view that I have… We think that AI is like any other technology cycle which will reorient, which will create some newer avenues for growth and will take away some of the old ones,” he said.
He noted that the transition phase may weigh on performance in the near term. “At the moment you are looking at a sector which is IT sector in the transition… During these periods generally the sector derates.”
Despite this, he remains watchful rather than outright negative. “We are marginally underweight and watching the data points carefully to see when the growth rates start to go better maybe in three to four quarters.”
A Market at an Inflection PointAs markets balance recovery with uncertainty, the coming months will be critical. While the base case suggests stabilization, key variables—particularly oil prices and geopolitical developments—will determine whether optimism holds or gives way to renewed volatility.
For now, investors appear to be positioning selectively, focusing on sectors with structural strength while keeping a close eye on evolving risks.
