The Indian equity market is likely to see weakness in the near term amid heightened volatility, says Emkay Institutional Equities. The brokerage expects a gradual consumption recovery in H2CY25, led by an improvement in employment trends, a revival in unsecured lending and a rise in welfare spending.
It sees Nifty at 25,000 by December 2025 with FPI selling to decrease by Q2CY25.
The brokerage's top investment ideas include Lupin, Zomato, Tata Motors, IndusInd Bank in the large cap space. It is bullish on Escorts, Paytm and Metropolis in the midcap segment and Stovekraft and Quess Corp in the small cap segment.
In terms of sector wise outlook, the brokerage maintains an overweight stance on discretionary, real estate, and healthcare, while remaining neutral on industrials, IT, and energy. On the other hand, financials, staples, and materials are designated as Underweight due to structural concerns and valuation pressures.
Emkay Institutional Equities anticipates discretionary consumption recovery within 2-3 quarters, led by a rebound in IT hiring, better liquidity conditions, and an improvement in retail lending dynamics. Additionally, state-led women-centric welfare schemes and robust winter crop sowing are likely to bolster consumption trends.
On the ongoing FII selling, Emkay said FPI activity may stabilize post-1QCY25, with valuations having moderated and earnings forecasts bottoming out over the next 2-3 m. A peak in the US Dollar Index (DXY) should also ease rupee depreciation concerns and help arrest FPI selling. The infusion of liquidity by the RBI could stimulate domestic equities and benefit the BFSI sector. Nirav Sheth, CEO - Institutional Equities, Emkay Global Financial Services stated: “Markets tend to over-react and overextend on both, the upside and the downside. The bottoming process is usually volatile which we are currently witnessing. Our macros are solid, given the low and stable CAD, fiscal deficit under control, and a more accommodative monetary policy now. We estimate that the worst of the earnings downgrade cycle is behind us and expect a recovery in the second half of the fiscal – triggered by renewed government spending and tax relief led consumption spend. It is time to buy.”