Expert view: Rahul Ghose, Founder and CEO of Octanom Tech and Hedged.in, believes the Nifty 50 may deliver marginally negative returns in 2026. He, however, believes this will be the foundation for the next meaningful leg up. Ghose expects meaningful earnings improvement from Q3FY27 onwards if crude stays subdued, the monsoon remains normal, and consumption recovers.
Here are edited excerpts from the interview:
What is your outlook for the Indian stock market for the rest of the year? Can the Nifty 50 give negative returns this year?
The clouds that weighed on Indian markets through much of this year are gradually clearing.
The three biggest overhangs- geopolitical uncertainty, elevated crude, and persistent FII outflows – have all shown meaningful signs of reversal.
Crude, which spiked sharply when the West Asia conflict escalated, has now broken down decisively.
WTI crude is now near its lowest since early March, driven by US-Iran peace negotiations progress, a 60-day Iranian oil export license, and rising Hormuz traffic.
A sustained move below the 200 EMA on crude charts is structurally bearish for oil, and structurally positive for India.
The rupee, meanwhile, has risen to a six-week high of 84.33 against the dollar, supported by lower oil prices and strong capital inflows following the US-Iran peace deal, according to Kotak Securities.
FIIs- who were relentless sellers through much of FY26- have started some buying.
Does this mean a sharp rally from here? Not necessarily.
FY26 Nifty EPS growth came in at just 4.5%- well below the 12–15% expected at the start of the year, marking the second consecutive year of consensus earnings disappointment.
That overhang doesn’t vanish overnight. Nifty trades with a positive bias for the rest of the calendar year 2026, but the recovery will be slow and uneven.
Sub-par or even marginally negative returns for the full year remain a possibility. What 2026 is building, however, is the foundation for the next meaningful leg up.
Should we brace for weak earnings at least till the end of the December quarter?
Earnings recovery will be gradual, not sharp.
Nifty 50 companies posted adjusted net profit growth of just 4.5% YoY in Q4FY26 – the eighth consecutive quarter of single-digit or weak growth – and their share in India Inc.’s total earnings fell to 47.1%, the lowest in 21 quarters.
The problem is concentrated. BFSI, FMCG, and IT services together carry a 60% weight in the Nifty 50, and all three are currently struggling with low single-digit earnings growth.
There is, however, a structural positive buried in the data: while large-cap Nifty earnings disappointed, the combined net profit of all 3,081 listed companies grew 15.1% YoY in Q4FY26 – a meaningful acceleration from 9.2% in Q4FY25.
The broader market is carrying the earnings torch right now. FY27 EPS estimates for the Nifty have already been downgraded 2–3% since March, and risks remain skewed to the downside given elevated input costs and global uncertainty.
Analysts project 17.1% Nifty EPS growth for FY27, but the track record – FY25 came in at 3.4% against an expected 15%, FY26 at 4.5% against an expected 12–15% – warrants considerable caution.
Expect Q1FY27 earnings to remain muted. A meaningful improvement in Nifty-level earnings is more likely from Q3FY27 onwards, contingent on crude staying subdued, monsoon normalising, and consumption recovering.
What should our equity investment strategy be for mid- and small-cap stocks?
Mid and small-caps have been one of the few bright spots. The Nifty Midcap 150 has hit an all-time high and has been sustaining near those levels – a sign of underlying strength, not just momentum.
Relative strength against the Nifty 50 has been notable. The earnings picture for the broader market supports this.
As discussed above, India Inc. outside the Nifty 50 has been growing profits at a far healthier clip than the index itself.
That divergence is showing up on charts. But this is not a market to spray capital broadly in mid and small caps.
Stock selection is everything. Several quality names corrected 40–50% from their peaks and are now in gradual recovery mode – these setups, where fundamental earnings viability is intact but price had compressed sharply, deserve attention.
Sectors with visible earnings catalysts – capital goods, select financials, textiles – offer more clarity than pure momentum plays.
Focus on companies where the earnings recovery thesis is specific and traceable, not just a macro-driven hope.
Where are the opportunities? What are your preferred stocks?
Three sectors stand out:
1. Banking and financial services: Private sector banks present the most asymmetric risk-reward in the market today, with the Nifty Private Bank index trading near the lower end of its five-year valuation range at approximately 1.96 times book value.
RBI’s liquidity measures – CRR cuts, OMOs, and FCNR/ECB inflow initiatives – have meaningfully improved system liquidity.
Credit growth remains healthy. Within this space, ICICI Bank, Kotak Mahindra Bank, and SBI are the names to watch for a combination of earnings quality and valuation comfort.
2. Capital Markets Ecosystem: As markets recover, the capital markets ecosystem – broking, asset management, depositories – will see a direct lift in revenues.
NSE’s imminent listing adds a further catalyst, with the halo effect likely to extend to related stocks. BSE, CDSL, and Angel One are the names in focus here.
3. Textiles: The India-UK FTA has changed the calculus for Indian textile exporters. Most textile stocks are either on the verge of a breakout or have already broken out of multi-month consolidation zones.
KPR Mills, Vardhman Textiles, and Gokaldas Exports are stocks worth watching for both the FTA tailwind and improving chart structure.
Will IT stocks make a comeback, especially with AI adoption accelerating?
IT stocks remain under pressure, and the near-term outlook has not materially improved.
The Nifty IT index is down approximately 30% year-to-date, driven by Gen AI disruption fears, macro uncertainty, and geopolitical risks.
The structural debate in IT is more nuanced than just “AI is bad for the sector.”
AI could cause approximately 2–3% annual deflation in traditional IT services revenues over the next few years, but simultaneously, AI-led services could create an incremental total addressable market of $300–400 billion by 2030 — comparable in size to India’s current $280 billion IT industry.
The opportunity is real. The timing is not.
Right now, deal wins, order book momentum, and FY27 guidance from TCS, Infosys, HCL Tech, and Wipro matter more to the market than headline earnings numbers.
Companies that are genuinely monetising AI – not just talking about it – will be re-rated first. The others will wait.
Value buyers will eventually return to IT. But for most stocks, that level of attractive entry is still 15–20% lower than current prices.
Watch deal flow data, management commentary on AI revenue contribution, and Accenture’s quarterly numbers as leading indicators before positioning meaningfully.
Will crude volatility, rupee weakness, and a poor monsoon hurt the consumption theme?
Two of the three risks have materially reduced. Crude oil prices have eased significantly, with experts noting that immediate energy price risks have declined substantially, reducing India’s import bill and relieving current account pressure.
The rupee is being supported from both the trade account, through lower oil, and the capital account, through strong FCNR(B), ECB, and debt inflows.
A sustained rupee around current levels removes the imported inflation overhang for most consumer-facing sectors.
The monsoon remains the wildcard. The RBI’s June MPC meeting explicitly cited deficient monsoon concerns as a key risk, projecting CPI to peak at 5.9% in Q3FY27 — with food inflation the primary driver.
If the monsoon disappoints meaningfully, rural demand recovery gets delayed, food prices spike, and discretionary consumption softens.
That would hurt FMCG rural volumes, two-wheeler sales, and value-segment consumer durables first.
That said, the overall macro configuration is more favourable for consumption today than it was six months ago.
For consumer durables, urban demand is holding up, and a good monsoon recovery would add the rural kicker.
For autos, FY26 closed at a historic 29.6 million units sold across all categories, a 13.3% YoY increase, with passenger vehicles growing 8% to approximately 4.7 million units.
The structural demand story in autos remains intact. FMCG is more of a gradual story – watch for volume recovery signals in Q2FY27 results.
The approach for the consumption theme: cross the bridge when it comes to on the monsoon.
The global and domestic macros are broadly in India’s favour right now.
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Disclaimer: This article is for educational purposes only and does not constitute investment advice. 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.