Just weeks ago, fears around war-driven inflation had fund managers on edge. Now, with tensions cooling, Christy Mathai, Fund Manager at Quantum AMC, says the worst-case earnings scenario may not play out after all — and he's been using the recent market fall to selectively add to his portfolio.
Why the earnings scare may be fading
Mathai told ET Now that his earlier concern was a prolonged hit to corporate earnings from war-related input cost pressures. That worry appears to be easing. He now expects any earnings impact to last just one or two quarters rather than spilling into the following year, helped along by RBI's recent FCNR deposit measures, which he views as an incremental positive for markets.
Importantly, he noted that valuations in his largecap-heavy portfolio hadn't been the real concern, the question was always whether earnings would hold up. With that picture looking better, he's used the recent dip to add to insurance and logistics stocks.
Skipping defence, chemicals, for now
Despite the geopolitical backdrop pushing names like defence and chemicals into the spotlight, Mathai isn't chasing those themes. He pointed out that chemicals face margin pressure from rising freight costs and Chinese supply moves, and only a handful of companies in that pack actually have real pricing power — making current valuations unattractive for a meaningful position. Defence, after its earlier sharp rally and recent correction, still doesn't look cheap enough to him either.
Instead, he's leaning into sectors hit hardest by foreign investor selling, particularly financials and IT, where he sees better value emerging.
IT: Waiting for an AI-driven inflection point
On IT services, Mathai flagged a real headwind: revenue deflation layered on top of a weak global macro backdrop, which he says explains the modest 3-4% growth guidance many companies have put out. He believes enterprise AI adoption across large global companies remains limited — only an estimated 3-4% of tech budgets currently go toward AI-related spending. Once that adoption accelerates, he expects it to translate into meaningfully more work for IT services firms.
Until that inflection point arrives, he likes that many large IT names are trading with 5-6% dividend yields and strong cash generation — fitting his value-oriented investing style. He's added to these names over the past few months.
FMCG gets a near-term nod, not a long-term bet
In consumption, Mathai sees near-term tailwinds for FMCG: GST-related disruptions have settled, volume growth picked up in the fourth quarter, and falling input costs could support margins further. But he's not willing to pay premium valuations for what he still expects to be a modest 6-7% normalized long-term growth rate. He's more constructive on consumer discretionary stocks tied to mass consumption, which corrected sharply during the recent geopolitical flare-up — though he's watching El Nino-related risks closely.
Pharma: A bottom-up, stock-by-stock story
On pharma, Mathai said his approach is highly stock-specific rather than thematic. He's trimmed positions where the market appears to have overpriced upcoming drug launches, including some GLP-1-related optimism. At the same time, he added a position where a key drug's patent expiry actually created an opportunity — the company had reinvested prior cash surpluses into faster-growing segments, a shift he believes the market underappreciated.
The bigger picture
Mathai's approach reflects classic value investing: avoid crowded, expensive themes like defence and GLP-1 plays, and instead hunt for mispriced opportunities in sectors the market has temporarily punished, from insurance to IT to select pharma names.
