Investors, brace yourselves as the Sensex and Nifty have taken a nosedive in the past nine sessions. The benchmark stock indices are once again in the red, with concerns looming over decelerating earnings growth and high valuations, coupled with global cues like firm US treasury bond yields adding to the pressure. It seems there are not many positive triggers in the short term for the stock market to bounce back.
On Tuesday, the BSE Sensex closed at 75,613.32, marking a decline of 383.54 points or 0.50 percent. Meanwhile, the Nifty stood at 22,815.85, down by 143.65 points or 0.63 percent. Small and midcap indices also witnessed a downturn of 1-2 percent. This recent trend has been a cause for concern, as it marks the ninth session out of the past 10 where domestic indices have been trading in the red.
According to Nuvama, “Decelerating earnings amid still-high valuations (despite correction) warrant caution. We prefer large caps over SMIDs and maintain a defensive bias with private banks being the only key cyclical overweight.” The outlook for earnings remains bleak as global recovery remains uncertain, household incomes are weak, credit is slowing down, corporate capital expenditure is subdued, and fiscal and monetary policies have not yet become accommodative.
For BSE500, the consensus is predicting a PAT growth of 14–16 percent each in FY26 and FY27 compared to 9 percent in 9MFY25. However, Nuvama warns that actual earnings may fall short of expectations as demand dynamics remain weak, which could potentially erode record-high profit margins.
ICICI Securities highlighted that Indian equity valuations have seen a sharp contraction since September 2023, partly due to a downward revision in GDP growth and largely due to the significant 130 basis points increase in US bond yields. Despite the US Federal Reserve reducing rates by a total of 100 basis points since September 2024, the US 10-year bond yield and dollar index are showing signs of peaking out, indicating that the markets have absorbed the tariff impact.
Looking ahead, the domestic brokerage predicts that the markets could remain volatile until there is more clarity on the Trump administration’s tariff policy. However, they remain optimistic about growth and profitability in FY26 compared to FY25, assigning a fair valuation for Nifty at a 5 percent earnings yield. Their one-year target for Nifty is set at 26,000, aligning with long-term expected returns from Indian equities.
In terms of sector preferences, the brokerage is overweight on financials, industrials, and discretionary consumption. Their top picks include Bharti Airtel, UltraTech Cement Ltd, Suzlon Energy Ltd, NTPC Ltd, ONGC Ltd, Maruti Suzuki India Ltd, State Bank of India (SBI), SBI Life Insurance Ltd, and Bajaj Finance Ltd.
Kotak Institutional Equities, on the other hand, does not see much value in most parts of the stock market despite the recent correction. They anticipate lacklustre performance from domestic stocks due to rich valuations across sectors, potential earnings downgrades, and the likelihood of higher global interest rates in the foreseeable future.
In conclusion, while the stock market continues to face challenges and uncertainties, it is crucial for investors to stay informed and seek advice from qualified financial advisors before making any investment decisions. The road ahead may be bumpy, but with the right strategies and insights, navigating the market turbulence can lead to rewarding outcomes.
