'Earnings slowdown could trigger a fair correction'

With over three decades of experience in the Indian equity markets, Taher Badshah, Chief Investment Officer (CIO) at Invesco Mutual Fund, oversees five equity schemes with a combined AUM (assets under management) of nearly Rs 30,000 crore. His portfolio includes the four-star rated Invesco India Focused Fund and Invesco India Smallcap Fund. The Invesco India Contra Fund, with assets of Rs 18,470 crore, stands as the AMC's largest scheme. In this insightful interview, Badshah shares his seasoned investment philosophy and provides a comprehensive outlook on the current market landscape. The markets have been hitting new highs regularly this year, but can this rally keep going with global uncertainty in the mix? Today's market configuration doesn't give us a choice as investors. However, we need to evaluate the economic cycle separately from the market cycle. The Indian economic cycle appears to be in a reasonably good position, albeit some global elements merit attention. Overall, macro factors like inflation, interest rates, the current account deficit, and currency are all trending positively. From a cyclical perspective, India has seen a much needed strong investment cycle over the last two years and is progressing reasonably well. However, we haven't witnessed a significant upswing in the broader parts of the consumption economy. The expectation of lower interest rates, moderate inflation, and a robust monsoon provide a compelling promise for an upswing in consumption, which could expand in scope. This will likely result in the economy's investment and consumption engines firing simultaneously.Meanwhile, on the investment side, the public investment cycle has remained robust up to this point, even as the private investment cycle is beginning to warm up. Increasing evidence suggests an upswing in the private capital expenditure cycle hereon. We are in a good place where the economic outcomes could be more balanced than we've seen in the last two years. Therefore, we are not overly concerned about the overall state of the economy. Of course, we will encounter some global issues along the way. We will also have to confront geopolitical risk at various points in time in our economic journey. From a domestic economy standpoint, the one concern is a potential cyclical slowdown in earnings. We have grown at a very strong pace between 20-25 per cent in earnings in the last two years. While the market presently expects this to decelerate to around 15 per cent in the coming two