According to Sridhar Sivaram, Investment Director at Enam Holdings, the primary cause for India's recent stock market underperformance is straightforward: persistently weak corporate earnings growth. He notes that for six consecutive quarters, earnings have grown only in single digits, a trend that has directly translated into subdued market returns.

The Core Issue: An Earnings Drought
Sivaram emphasized that "if earnings comes back, everything will fall into place." The disconnect between high valuations and modest profit growth has been a key overhang on the market.

The Turning Point: A Strong FY27 Recovery Expected
Sivaram is optimistic about a rebound, forecasting earnings growth of 15–18% in FY27. He anticipates that with stronger Q3 FY26 results likely in early 2026, the market could begin its recovery from January–February 2026.

A Structural Policy Shift: Reviving Nominal GDP
He also points to a meaningful structural shift in policy aimed at stimulating growth. Both the government and the RBI, he argues, have recognized the economic drag from low nominal GDP growth. Recent measures—including GST cuts, RBI rate cuts, and a more open stance on capital flows—represent a coordinated effort to revive consumption and, eventually, trigger private capital expenditure (capex). "Companies invest only when they see demand," he noted, suggesting these policies could break the cycle of weak consumption and cautious investment.

Sector Preferences: Financials, High-End Consumption, Pharma

• Financials: Remains positive, as lower interest rates for an extended period will support banks and NBFCs.
• Consumption: Expects high-end consumption (autos, travel, hospitality, premium discretionary) to stay strong, though rural demand remains lagged due to low food prices.
• Pharmaceuticals: Sees bottom-up opportunities emerging across the sector.
• E-commerce: Mixed view—some companies look attractive after corrections, while others remain expensive.

Caution on the IPO Frenzy and Mutual Fund Dynamics
Sivaram expressed caution regarding the ongoing flood of IPOs, stating Enam largely avoids new issues because valuations are often high and promised growth frequently fails to materialize. He highlighted a structural issue in mutual funds: inflows are not keeping pace with the IPO supply, forcing funds to sell existing holdings to participate in new issues. He believes this IPO supply will eventually cool once the market sees underperformance from newly listed companies.

Bottom Line:
Sridhar Sivaram’s analysis provides a clear diagnosis and a hopeful prognosis for Indian equities. The market’s underperformance is fundamentally an earnings problem, not just a valuation or sentiment issue. The anticipated earnings recovery in FY27, supported by a pro-growth policy pivot, could mark a significant inflection point. Investors should focus on sectors with visible earnings momentum and reasonable valuations, while exercising extreme selectivity in the overheated IPO market. The next few quarters will be critical in determining whether corporate profits can indeed reaccelerate and validate the market's long-term growth narrative.