The Indian stock market benchmark Nifty 50 is down 15% year-to-date, and while it is impossible to predict with certainty, the index appears increasingly likely to end the calendar year in the red.
A combination of headwinds – from higher prices due to the US-Iran conflict, earnings growth-valuation mismatch, foreign capital outflow, lack of AI-trade, and rising global bond yields – has dragged the market through the year so far.
The road ahead remains hazy, as the resolution to the US-Iran conflict still looks remote, oil prices continue trading above $100 per barrel, and bond yields in the US remain elevated due to the prospects of further rate hikes by the US Federal Reserve and concerns over rising debt of the US government.
Top experts reveal stock market outlook, preferred sectors
Shrikant Chouhan, Head Equity Research, Kotak Neo, underscored that the near-term market environment remains challenging, with sentiment likely to stay cautious amid ongoing volatility and uncertainty.
He, however, added that the widening gap between negative sentiment and underlying valuations is creating a more constructive opportunity for disciplined, long-term investors.
“Rather than attempting to identify a entry point or time in the market, investors should on gradually building a diversified portfolio of fundamentally strong companies through a staggered accumulation strategy. This approach can help manage near-term volatility while allowing investors to participate in the potential recovery,” said Chouhan.
Chouhan estimates Nifty 50 earnings per share at ₹1,238 for FY27 and ₹1,416 for FY28.
He said that at levels, the index is trading at approximately 18.5 times FY27 and 16.1 times FY28 earnings, which provides a relatively comfortable valuation framework from a one-year investment perspective.
Technically, 22,000 and 21,500 remain important support levels, while resistance has shifted lower from 24,000 to 23,000. A sustained move above 23,000 would improve market sentiment, while a breach of 22,000 could increase volatility. Until then, a measured and staggered approach remains preferable, said Chouhan.
Based on current fundamentals, Chouhan said the following sectors are attractive at current levels.
“Banks, capital markets, diversified financials, durables, EMS, healthcare, pharmaceuticals, hotels and restaurants, insurance, internet software and services, real estate, telecom, and transportation,” said Chouhan.
Narendra Solanki, Head Fundamental Research – Investment Services at Anand Rathi Share and Stock Brokers, pointed out that the markets are more worried about global volatile situations and possible worsening in hostilities and inflation concerns, which may potentially harm the already fragile global growth.
Among domestic factors, rising inflation, the start of the rate hike cycle and the potential negative impact arising out of a weaker monsoon in overall domestic growth and fiscal dynamics are also keeping markets worried.
Solanki prefers auto and ancillaries, banks, power, defence, capital goods, new age stocks, metals (both ferrous and non-ferrous), and hospitals. He said IT, consumer, and FMCG are long-term positive but short-term neutral.
According to Pankaj Pandey, the head of research at ICICI Securities, for the markets to witness a sustainable run, crude oil prices and bond yields need to come down.
“That is the single most important factor that needs to be watched from here on. Otherwise, most of the other parameters – whether you look at earnings growth or valuations in key sectors – are favourable for us,” said Pandey.
Among the sectors, Pandey is positive about the entire energy value chain, which looks attractive to us because energy security is paramount.
Defence is another sector where he doesn’t see any kind of decline in earnings, either globally or domestically.
“With rising private-sector participation, I think things will become even better and more differentiated,” said Pandey.
“BFSI is another sector that can offer returns above Nifty earnings growth. The premium leg of consumption should do well, whether it is autos or a host of other sectors,” Pandey said.
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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 individual analysts or broking firms, 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.