Benchmark stock indices resumed the recent weak trend after closing flattish on Monday, as concerns over decelerating earnings growth and steep valuations loom large, with global cues, especially firm US treasury bond yields, also offering recent respite. There are not many positive triggers for the stock market to go up in the short term.
On Tuesday, the BSE Sensex was trading at 75,613.32, down 383.54 points or 0.50 per cent. Nifty stood at 22,815.85, down 143.65 points or 0.63 per cent. Small and midcap (SMID) indices fell 1-2 per cent. This was the ninth session out of the past 10, when domestic indices were trading in the red.
"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," said Nuvama.
Demand is critical for earnings, but the outlook is dull as global recovery is uncertain, household incomes are weak, credit is slowing, corporate capex is subdued while fiscal and monetary policies have not yet turned accommodative, the domestic brokerage said.
For BSE500, the consensus is building PAT growth of 14–16 per cent each in FY26 and FY27 against 9 per cent in 9MFY25. Nuvama said the actual earnings may thus disappoint, as demand dynamics are still weak, which could erode record-high profit margins.
ICICI Securities noted that India equity valuations have contracted sharply since September 2023 in part due to a downward revision to GDP growth, but more so owing to the sharp 130 basis points rise in US bond yields. This is despite the US Fed slashing rates by a cumulative 100 basis points since September 2024. This brokerage said the US 10-year bond yield and dollar index are peaking out, indicating that markets have largely absorbed the tariff impact.
"Given the prospects of improving growth and profitability in FY26 compared to FY25, we assign a fair valuation for Nifty at 5 per cent earnings yield. Our one-year ahead target for Nifty stands at 26,000, which is in line with the long-term expected return from Indian equities. However, in the short term, markets could remain volatile till clarity emerges on Trump administration’s tariff policy," the domestic brokerage said.
This brokerage is overweight on financials, industrials and discretionary consumption. Its 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.
Emkay Global's top investment ideas include Lupin, Zomato, Tata Motors, IndusInd Bank in large caps. Escorts, Paytm, Metropolis in midcaps, and Stovekraft, and Quess Corp in the small cap segment. Kotak Institutional Equities said it does not find much value in most parts of the stock market despite the recent sharp correction. It expects domestic stocks to turn lacklustre on the back of rich valuations across sectors and stocks, potential earnings downgrades and higher-for-longer global interest rates.