Expert view on Indian stock market: Nandish Shah, AVP – PCG Research and Advisory (Fundamental), Wealth Management, Motilal Oswal Financial Services, says the outlook for Indian equities in Samvat 2082 is positive. In an interview with Mint, he said he expects FIIs to come to Indian markets as corporate earnings recovery gains traction from Q3FY26 onward, and growth broadens across sectors. Here is an edited excerpt of the interview:
What is your outlook for the Indian stock market for Samvat 2082?
The outlook for Indian equities in Samvat 2082 appears positive, supported by an impending earnings recovery, reasonable valuations, and resilient domestic flows.
Nifty earnings grew about 5 per cent in FY25 and are expected to rise around 8 per cent in FY26, marking the bottom of this cycle.
From FY27, a sharper rebound is expected, with Nifty EPS projected to increase nearly 16 per cent, led by financials, autos, capital goods, and consumption.
Valuations are now more balanced. Nifty’s one-year forward P/E stands near 20.6 times—close to its long-term average—while the trailing multiple has corrected to 23 times from 27 times a year ago.
This normalisation, alongside a visible profit recovery, offers a stronger foundation for the next leg of market growth.
The key triggers for Samvat 2082 include a pickup in earnings momentum, revival in FII inflows, clarity on trade policy, and geopolitical stability.
Domestically, policy continuity, robust capex, and supportive monetary conditions will remain key drivers.
What are your expectations for Q2 earnings?
Earnings growth in Q2FY26 is expected to stay moderate, with Nifty PAT projected to rise around 6 per cent YoY and the MOFSL universe by about 9 per cent.
The broader tone of the season should remain steady but not spectacular, as a few heavyweights continue to drag aggregate performance.
Key earnings drivers are expected to include oil and gas, NBFC lending, telecom, metals, cement, capital goods, and healthcare, which together contribute nearly 95 per cent of incremental earnings.
Capital goods are expected to maintain strong growth momentum on robust order books, while cement is poised to deliver a sharp earnings rebound through disciplined pricing and stable volumes.
Autos may report healthy festive-led demand and margin improvement, while financials are likely to post stable credit growth and asset quality trends.
On the weaker side, banks, particularly PSUs, could report earnings moderation after a high base, while IT services and insurance may remain soft amid global and sectoral headwinds.
Overall, Q2FY26 should reinforce the view that earnings have bottomed, with a stronger recovery expected from the second half of FY26 as macroeconomic and policy tailwinds align.
FIIs continue selling Indian equities despite the dollar’s weakness this year. When do you expect a trend reversal?
Foreign investor flows have remained muted over the past year, despite the dollar’s weakening, as global sentiment remained risk-averse and domestic valuations appeared elevated.
Since the Sep’24 market peak, FIIs (foreign institutional investors) have sold about $27 billion, including $15.3 billion in CY25 (calendar year 2025) YTD (year-to-date), while DIIs (domestic institutional investors) have infused a record $67 billion in the first nine months of CY25, providing a strong counterbalance.
Historically, FII flows have closely tracked India’s earnings and valuation cycle. During CY20–21, when Nifty earnings surged, FIIs invested $21–23 billion annually, while muted profit growth in later years led to subdued inflows.
With FY26 earnings expected to grow around 8 per cent (Nifty EPS nearly ₹1,096) and valuations now near long-period averages at nearly 20.6 times one-year forward P/E, conditions are normalising.
From Q3FY26 onward, as corporate earnings recovery gains traction and growth broadens across sectors, we expect the tide in foreign flows to shift.
A revival in FIIs could gather pace through 2026, aided by improving profitability, policy stability, and India’s rising weight in global equity benchmarks.
Where are the areas of opportunity in the Indian stock market? What sectors are you positive on for the next one to two years?
Over the next few years, opportunities in the Indian market are expected to be driven primarily by domestic cyclicals and structural growth themes, as the economy transitions from consolidation to a fresh earnings upcycle.
Our positioning remains overweight on autos, industrials, healthcare, BFSI, and consumer discretionary, and underweight on oil and gas, cement, and metals.
Autos are emerging as one of the strongest earnings drivers, supported by GST cuts, lower interest rates, improving rural demand, and festive-season momentum. Industrials and EMS continue to benefit from robust order books, policy-led infrastructure spending, and manufacturing incentives, sustaining double-digit earnings growth visibility.
Healthcare remains a steady compounding opportunity, with broad-based strength across pharmaceuticals, diagnostics, and hospitals.
Within consumption, discretionary themes such as travel, leisure, and quick commerce are seeing sustained traction, supported by premiumisation and formalisation.
Financials should remain steady beneficiaries of a strong credit cycle, supported by stable asset quality and profitability.
In contrast, global cyclicals such as IT services and metals may remain subdued due to external demand challenges.
Selectivity remains key, but domestically driven sectors are best placed to generate superior risk-adjusted returns as earnings visibility improves and India continues to consolidate its growth leadership within emerging markets.
What should be our strategy for the IT sector?
We expect the IT sector to remain in a phase of subdued growth through FY26, as macro and tariff uncertainties continue to weigh on client decision-making.
Demand remains cautious, with limited sequential improvement expected in Q2FY26.
Large-caps are likely to post low single-digit constant-currency growth, while mid-tier firms could modestly outperform on cost-focused deal wins.
A meaningful recovery is unlikely until the next technology cycle, driven by GenAI adoption and renewed tech budgets, takes hold over the next 15–18 months.
The current cycle lacks a budgetary catalyst, implying that any sector-wide re-rating will depend on sustained deal momentum and earnings upgrades in the coming quarters.
Margins are expected to remain range-bound amid pricing pressure, evolving delivery models, and ongoing transition costs from GenAI integration, although easing supply-side challenges should mitigate downside risk.
Given these dynamics, we advocate a bottom-up, selective strategy, focusing on companies that demonstrate operational resilience, execution strength, and margin stability, while maintaining a measured exposure until broader tech spending visibility improves.
How should first-time equity investors approach portfolio building?
For first-time equity investors, the approach to portfolio building should be guided by simplicity, discipline, and an earnings-led mindset.
It’s essential to begin with a core allocation to large caps and midcaps, which provide a balance of stability and growth.
Large caps provide resilience through established business models and steady cash flows, while quality midcaps can deliver higher growth as earnings visibility improves.
Investors should focus on companies and sectors where earnings growth is clear and sustainable, rather than chasing near-term momentum.
Financials, autos, industrials, and select areas of consumption and healthcare offer a mix of cyclical recovery and structural compounding potential.
Diversification across 8–10 well-researched names or via professionally managed equity funds helps manage risk effectively.
Above all, first-time investors should adopt a long-term perspective, view volatility as an opportunity, and gradually build exposure through systematic investments that align with their financial goals.
Can blending mutual funds with direct equity truly provide the right balance of risk and return?
Yes, combining mutual funds and direct equity can create a well-balanced portfolio that captures both growth potential and stability.
Mutual funds—especially diversified large-cap, flexicap, or hybrid strategies—offer professional management, disciplined asset allocation, and risk diversification, making them ideal for investors looking for consistent long-term returns.
At the same time, direct equity investments allow investors to participate more actively in high-conviction opportunities, particularly in sectors or themes with visible earnings growth.
The key is to ensure clear role definition between the two—mutual funds serving as the portfolio’s foundation, and direct equities as a focused satellite component.
This approach allows investors to benefit from compounding through funds while retaining the flexibility to express tactical or thematic views through equities.
Read all market-related news here
Read more stories by Nishant Kumar
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
