Expert view: Devarsh Vakil, Head of Prime Research, HDFC Securities, believes that are likely to remain volatile in the near-term, however, the most severe phase of the correction seems to be over for now.
In an interview with Mint, Vakil further highlighted that earnings season earnings season so far has been broadly stronger than anticipated, with companies reporting results that are largely in line with or slightly above expectations, and no significant negative surprises emerging across the broader market.
Here are edited excerpts from the interview –
The Indian stock market has remained highly volatile amid heightened geopolitical tensions. Do you think the worst of the fall is over?
Near-term direction will depend on how geopolitical tensions evolve, crude oil stays contained, and whether foreign fund flows remain stable; those are the main monitorable for the market in the coming weeks.
Given the evolving situation in the Middle East and the structural macro impact of the war, while may remain volatile in the near term, the worst part of the correction appears to be behind us for now.
What is reassuring is that the earnings season so far has been broadly better than feared, with companies delivering largely in line or modestly better-than-expected results and no major negative surprises at the broader market level. That helps cap downside because markets had already discounted a fair amount of caution, especially around near-term growth and sentiment. If crude remains contained and earnings revisions remain positive, the market can stage a near-term reversal, especially in sectors with visible growth.
A sustained rebound will likely need confirmation from both macro calm and continued earnings resilience.
FIIs have remained net sellers for more than a year. Do you think curtailing STCG and LTCG would help Dalal Street in containing the outflow of the US Dollar?
FII behaviour remains primarily driven by global cues such as US Treasury yields, dollar strength, higher crude prices and overall liquidity conditions. While tax adjustments are not the dominant force behind capital flows, they are far from irrelevant — a reduction or removal of taxes on gains can meaningfully improve India’s attractiveness at the margin, particularly when global conditions are broadly neutral. In such an environment, even incremental improvements in post-tax returns can tilt capital allocation decisions in India’s favour.
More importantly, sustained inflows depend on India’s ability to deliver consistent, high-quality earnings growth. Tax relief, where offered, can act as a positive sentiment booster and signal policy intent — but for large global funds, it is unlikely to fully offset concerns around a weaker rupee, higher crude prices or slowing earnings momentum. The fundamentals must lead; favourable taxation can amplify the case, not make it.
With Indian Rupee hitting record low and rising oil prices, should investors still adopt ‘buy on dips’ trading strategy?
While the Indian Rupee is sliding to record lows and crude oil is hovering at elevated levels, which pose significant macroeconomic challenges, a blanket “buy on dips” strategy should be avoided in favour of a highly selective accumulation approach.
In an uncertain geopolitical environment, corporate profit margins across many sectors will be squeezed over the coming quarters, making a generic approach to buying market corrections highly risky.
Investors who blindly buy every market drop risk catching a falling knife, particularly in premium-valued sectors that are highly sensitive to rising input and borrowing costs.
To successfully navigate this period, investors must pivot from a broad-market strategy to a tactical, sector-specific playbook.
Export-oriented sectors like Pharmaceuticals and Speciality Chemicals act as natural hedges because they earn revenues in US Dollars, meaning a weaker Rupee actively boosts their margins when converted back to INR.
Ultimately, the structural long-term growth story of the Indian economy remains robust, but the immediate climate demands that investors halt large lump-sum deployments, utilise staggered Systematic Investment Plans (SIPs), and focus on companies with a strong balance sheet and pricing power.
What is the safest trading strategy right now? Is it better to ‘sell on rallies’ or just sit on the sidelines and wait?
The market has stopped reacting aggressively to negative cues from ongoing geopolitical tensions, rising crude prices, and a weakening rupee. FIIs have maintained aggressive short positions in the index futures segment, with the long-to-short ratio falling to as low as 0.14. Such extreme readings suggest a strong possibility of mean reversion or short covering in the coming weeks.
History shows that wars and geopolitical shocks have often created attractive opportunities for long-term investors who used market corrections to accumulate quality assets.
Mid-caps and small-cap stocks have outperformed large-cap stocks. Should investors take the risk or keep invested in safe bets?
The registered a sharp bounce in April 2026. During this rally, the Nifty Microcap250 and Smallcap100 indices surged by over 28% and 25%, respectively, compared to an advance of around 11% in the Nifty. The primary reason behind the underperformance of large caps has been the withdrawal of liquidity by FIIs from Indian equities. The market has found support largely from domestic institutions and retail investors, who typically prefer mid-caps over the FII-dominated large-cap segment.
Smaller companies can deliver stronger upside in improving growth phases, but they also carry higher volatility and business risk than large caps. A sensible framework is to keep core exposure in large caps and add mid- and small caps only through high-quality names. That way, you participate in the upside of the current leadership without taking concentrated risk across the most fragile part of the market.
Which sectors should we focus on in 2026 amid weak corporate earnings?
This earnings season, select pockets have delivered positive surprises. Defence and Aerospace stood out, with companies reporting strong results underpinned by multi-year order visibility — a sector we remain constructively positioned on. The expanding global export opportunity adds a further dimension to an already compelling medium-term outlook.
Pharmaceuticals remain a favoured sector, though conviction is selective. The fading of gRevlimid tailwinds will create a high base effect in FY27, potentially weighing on earnings for several players. That said, currency tailwinds offer a meaningful operating offset, and the sector’s financial strength is notable — balance sheets are largely debt-free, cash reserves are substantial, and the conditions for value-accretive M&A are increasingly in place.
In the broader market, Midcap and Smallcap companies have reported reasonably healthy numbers. After a significant correction from peak valuations and with earnings trajectories remaining constructive, midcaps in particular present an attractive entry point for patient, selective investors.
Opportunities are most compelling in Defence, Pharmaceuticals, IT, FMCG, Infrastructure, Cement, and Real Estate — though stock selection, rather than broad exposure, remains the operative discipline.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.