Strong Q4 earnings and a structural manufacturing export opportunity are fueling optimism in India's equity markets, according to Mukul Kochhar. Despite geopolitical headwinds, robust corporate profitability and favorable trade agreements are expected to drive growth, with AI reshaping the IT sector's future opportunities.

Manufacturing exports, earnings revival and AI: Why Mukul Kochhar sees Indian market staying resilient

Synopsis

Strong Q4 earnings and a structural manufacturing export opportunity are fueling optimism in India's equity markets, according to Mukul Kochhar. Despite geopolitical headwinds, robust corporate profitability and favorable trade agreements are expected to drive growth, with AI reshaping the IT sector's future opportunities.

India’s equity markets may be navigating geopolitical uncertainty and commodity price pressures, but strong earnings momentum and a structural manufacturing opportunity are keeping market optimism intact, according to Mukul Kochhar from Investec Capital Services. In a conversation with ET Now, Kochhar laid out why he believes the market recovery is backed by fundamentals rather than sentiment alone.

He pointed out that fourth-quarter earnings have been far stronger than expected, with profit growth for the BSE 500 universe running above 20% so far. According to him, if current quarterly earnings are annualised, they are already in line with analyst projections for FY27 earnings, suggesting that corporate profitability may have bottomed out.

“So, Q4 earnings have been really solid. So, just to give you an idea, it is so far quarter to date companies reported, pat growth is north of 20%. This is BSE 500, as a pack companies reported quarter to date,” Kochhar said.

He added that historically, annualising fourth-quarter earnings in a growing economy like India often results in further upside to earnings estimates over the following year.

While investors remain worried about near-term pressure from rising commodity prices in Q1 and Q2, Kochhar believes companies possess enough pricing power to pass on higher costs. He expects earnings estimates for FY27 to either remain stable or move higher once the temporary impact fades.

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This optimism around earnings, he said, explains why markets have recovered despite the ongoing conflict in the Middle East. Midcaps have bounced back sharply and benchmark indices have regained momentum, supported by confidence in corporate growth.

Kochhar, however, cautioned that a prolonged geopolitical crisis leading to a major spike in crude oil prices could still pose risks.

“Of course, if this war prolongs beyond July, August and we start getting shortage of crude and the crude price blows up beyond 150 and things start shutting down, that is a tail event that is not getting priced in by the markets today,” he said.

Manufacturing Exports Emerging As The Big Theme

Beyond short-term volatility, Kochhar believes India’s most important investment theme for the next five years will be manufacturing exports.

He argued that India’s trade agreements are dramatically changing the country’s export competitiveness. According to him, India previously had export access arrangements covering only about 20% of the global economy, but that number has now risen sharply with agreements involving Europe, Australia, New Zealand, the UK and ongoing understandings with the United States.

“Actually, more importantly, the theme of the next five years from India is going to be manufacturing exports,” Kochhar said.

He noted that Indian manufacturers historically struggled because of unfavourable trade tariffs compared with global competitors. With new trade frameworks narrowing that gap, sectors such as electronics, auto components and even defence manufacturing are beginning to benefit.

Kochhar said conversations with companies indicate growing confidence around export demand, especially in electronics manufacturing, where firms are preparing for stronger overseas opportunities amid expectations of new government incentives.

He also highlighted that India remains significantly underrepresented in global manufacturing exports. While India accounts for roughly 3.5% of global GDP, its share in manufacturing exports stands at only 1.9%, leaving considerable room for expansion.

“So, we are practically half of what our proportionate market share in manufacturing exports as it should be,” he said.

According to Kochhar, improving logistics, lower electricity costs, GST reforms and lower effective tax rates have strengthened India’s manufacturing competitiveness over the last decade. He expects export growth in several manufacturing categories to expand at 15-20% in dollar terms because of the relatively low base.

That growth potential, he argued, also justifies premium valuations for select manufacturing companies.

“So, if we are getting some manufacturing companies for 30 multiple on FY27 and which we are getting today, I am a happy buyer,” he said.

AI Disruption Could Reshape Indian IT

Kochhar also addressed concerns around artificial intelligence and its impact on India’s IT sector, especially after repeated selloffs in IT stocks whenever global AI companies announce new products or features.

He believes part of the correction in Indian IT came because valuations had become unsustainably high relative to expected growth rates.

According to Kochhar, India already commands about 4.5% of the global services exports market, making it difficult for large IT companies to sustain very high growth rates. He estimates large Indian IT firms may only grow at around 3-4%, while smaller, niche-focused companies could grow faster.

“For a 3-4% growth company, paying 18-19 multiples which we were paying on forward basis like six months ago was untenable,” he said.

Still, he does not see AI permanently damaging India’s IT services opportunity. Kochhar argued that global companies have consistently increased IT spending over the last two decades because technology investments are viewed as productivity and revenue-generating tools.

“This year the best thing to do is AI. So, most of your budget will go towards AI this year,” he said.

He expects the next wave of opportunities to emerge in application-layer AI services, where Indian firms could remain highly competitive. While foundational AI models may dominate headlines, Kochhar believes companies that build practical AI applications and client solutions will create significant value.

“There may be a year or two disruption where these things get reconfigured, but I do not expect India's services pie to get impacted especially in IT services if we look at the medium term,” he said.

When asked whether it is time to buy IT stocks, Kochhar said he remains selective. He prefers companies working directly on AI-driven services and solutions, particularly smaller and more agile firms capable of adapting quickly to technological change.

“But yes, the real excitement will be in some of these new companies that come up which are really-really nimble and are using the latest tool to solve problems for clients,” he said.

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