A number of brokerage firms believe that India equities have turned attractive for the investors after the recent correction as the valuations have eased down. However, they also caution that global uncertainty may weigh on the market sentiments but valuations of the Indian market provide some cushion.
The brokerage firms said a likely positive shift in fundamentals is not in the price and expects Indian equities to recover the lost ground against its peer group through the rest of 2025. The fundamentals for the Indian markets appear to be improving and soft quarterly earnings will start improving from a quarter or two.
Indian benchmark indices are in the corrective phase. NSE's Nifty50 index has cracked 14.5 per cent from its all-time high, while BSE Sensex is down nearly 14 per cent from its peak. Among the broader market indices, the BSE midcap index has plunged 21 per cent, while the BSE smallcap index has crashed about 24 per cent from its all-time high.
Multiple factors suggest that the Indian equities could be in the latter stages of correction unless any extreme unforeseen risk materializes. The modest earnings growth so far in FY25 should give way to double-digit growth in FY26. Market valuations have eased, especially in large-cap stocks, with Nifty-50 trading at discount, said Motilal Oswal.
"FII selling is one of the highest selling in the past decade. The recent global factors that are instrumental in these corrections are also turning around, with the Dollar Index, S&P500 and US bond yield retracing to levels closer to pre-US election results. Buying opportunity emerging in select names," Motilal Oswal added.
India stands resilient in Asia, benefiting from low goods exports, robust services exports, and domestic demand support. Despite unexpected fiscal and monetary tightening affecting growth, easing measures and increased government expenditure are set to drive recovery.
India is emerging as a strong contender in the Asian stock market amidst ongoing trade tensions, said Morgan Stanley. Its analysis highlights that India's goods exports to GDP ratio is the lowest in the region, making it less susceptible to trade disruption. India's services sector continues to expand, providing a stable cushion against global trade fluctuations.
"India faces direct tariff risks but is less vulnerable to a global goods trade slowdown, thanks to strong domestic demand. India's low beta characteristic makes it an ideal market for the uncertain macro environment that equities are dealing with," added Morgan Stanley. It prefers cyclicals over defensives and small and mid-caps over largecap stocks. It is overweight on financials, consumer discretionary, industrials and technology sectors.
From the largecap basket, Motilal Oswal has picked RIL, Bharti Airtel, Hindustan Unilever, L&T, Maruti, Titan, Adani Ports, Bharat Electronics, LTIM, Shriram Finance, JSW Energy and Polycab. It prefers beaten-down counters including HDFC AMC, Coforge, Page, AU SFB, JK Cements, Ipca, Godrej Properties, Brigade, Angel One, and Happy Forgings from the midcap and smallcap pack.
On the other hand, Nuvama Institutional Equities cautioned that the correction was due to India’s weak earnings amid high valuations. However, with valuation premium to EM now at a 10 year average, India-specific de-rating is perhaps done. Moreover, the RBI’s easing could provide near-term relief. But rising global uncertainties pose fresh downside risk.
Historically, during growth uncertainties, equities pivot only when rate cuts are deep, and valuations are cheap. Thus, earnings yields minus bond yields is a good guide for inflection points. This is still far from turning green. Maintain defensive bias, Nuvama suggested. "We downgrade IT to UW and raise weights in consumers given the recent global developments," it added.