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Management Commentaries & Guidance Remain Critical

We are happy to share that the Axis Top Picks Basket delivered a return of 9.7% in the last three months against the 8.5% return posted by the Nifty 50, outperforming the Nifty 50 by a notable margin of 1.2%. Moreover, over the last one month, the basket has gained 3.7%. Our Top Picks Basket has delivered an impressive return of 336% since its inception (May’20), which stands well above the 175% return delivered by the NIFTY 50 index over the same period.

India’s Domestic Economy Well-Positioned: Despite external risks, India’s domestic growth trajectory remains intact, with key macroeconomic factors supporting a stronger FY26 compared to FY25. Both the RBI and the government are providing support to the Indian economy through policy measures that are pro-growth in nature. These measures are a) 50bps CRR cut in Dec’24, b) 100 bps rate cut (front loading of 50 bps in Jun’25), c) Improved bank liquidity, d) A consumption boost provided in the budget, e) An uptick in the government Capex spending, and f) Dividend by the RBI. All these developments indicate better days for the Indian economy in FY26 as against FY25. Furthermore, in the last one month, some macroeconomic uncertainty has reduced significantly. Slowly but gradually, the bilateral trade developments are materialising towards a concrete conclusion. Most of the uncertain times are behind us. Soon, the market direction will be led by the management commentaries and the guidance in the upcoming earnings season. Nonetheless, further macroeconomic factors related to a conclusion on tariffs, yields, currencies, interest rates, and global growth need to be closely monitored going forward.  

Bounce-back Continued in Jun’25: Indian market witnessed a bounce back from Mar’25 onwards as Nifty 50 went up by 15%, and Mid and Smallcap went up by 25% and 29% respectively since Feb’25 low. Multiple factors contributed to this rally: a) Reduction of overall macroeconomic volatility related to tariffs, b) Positive bilateral trade developments, c) Reduction of geopolitical tensions and correction in oil prices, d) Strong macro setup for FY26, and e) Positive flows supported by improving risk appetite. In the last one month, the Smallcap index went up by 5.7% and the Midcap index by 4%, while the benchmark index, Nifty50, inched up marginally by 3.1%. The majority of the sectoral indices closed on a positive note, except for the FMCG index. Overall, the breadth of the market has improved significantly over the last three months.

We believe that, at the current juncture, macroeconomic risk will continue to drive the market direction for another couple of months. However, the majority of the negatives related to trade uncertainty are behind us. Going forward, the upcoming earnings season will be very critical for the further market direction. In this regard, the management commentaries and guidance are critical for the further direction of the market. Keeping this in mind, we believe the market needs to sail through another couple of months smoothly before entering into a concrete direction of growth. As a result, we expect near-term consolidation in the market, with breadth likely remaining narrow in the immediate term. If the two upcoming events—trade-related uncertainty easing further and the absence of major negative surprises in Q1FY26 earnings—play out as expected, the market is likely to make a new high in the upcoming earnings season.

Style and Sector Rotation - A Key to Generating Alpha Moving Forward: Risk reward is slowly building towards Mid and Smallcaps. Nonetheless, recovery will be slow and gradual as we progress towards FY26, led by strong earnings expectations, improving domestic liquidity, and stable Indian macros. Against this backdrop, our focus remains on growth at a reasonable price, ‘quality’ stocks, monopolies, market leaders in their respective domains, and domestically-focused sectors and stocks. These, we believe, may outperform the market in the near term. Based on the current developments, we 1) Continue to like and overweight BFSI, Telecom, Consumption, Hospitals, and Interest-rate proxies, 2) Continue to maintain positive view in Retail consumption and FMCG sectors based on the recovery expectations in FY26, 3) Prefer certain capex-oriented plays that look attractive at this point in light of the recent price correction as well as reasonable growth visibility in the domestic market in FY26, 4) Monitor Q1FY26 earnings of the IT sector (as slowly and gradually the macroeconomics uncertainty is reducing which would materialize into the guidance.) 

Based on the recent developments, we have made one change to our Top Picks recommendations. This includes booking profits in ICICI Bank and the addition of Bajaj Finance. Our modifications reflect the changing market style and a slight shift towards interest rate cut proxies. 

Our Key Themes

Key Monitorables in FY26: Most significant events are now behind us, with the majority of negative concerns regarding earnings already factored into the price. Hereon, the market will closely monitor the global developments around the following events: 1) Developments in the US government’s policies, 2) Developments in the reciprocal tax, 3) Further rate cuts by the US FED in 2025 based on the growth and inflation dynamics, and 4) The direction of currency and oil prices in the remaining part of 2025.

On the domestic front, a series of domestic events suggests better days ahead in FY26 than FY25. These are 1) A 50bps CRR cut by the RBI in Dec’24, 2) Consumption boost in the Union Budget, 3) 100 bps of Rate cuts by the RBI, and 4) Improved liquidity measures by the RBI. These events indicate better days ahead in FY26, with improved credit growth and overall consumption improvements. These developments suggest a revival of economic momentum for FY26 compared to FY25, which would remain the primary driver of earnings growth for Indian corporates moving ahead.

Q1FY26 Earnings Preview: Management commentaries and guidance will be critical for the market. However, domestic sectors are likely to showcase some strength based on sequential improvement in the capex spending and YoY improvement. On the other hand, export-oriented sectors may continue to witness pressure for some time. The consumption theme is likely to witness some dent due to geopolitical tension and early monsoon. Nonetheless, the Upgrade/Downgrade ratio is likely to improve as we progress into FY26.

We maintain our Mar’26 Nifty target at 26,300

In our Mar’25 Top Picks report, we had reduced the Dec’25 Nifty target to 24,600 based on the development of various Macroeconomic risks in the market at that time. Since then, the overall sentiment in the market has significantly improved, and tariff-related uncertainty has also reduced to a certain extent. On top of that, the earnings scenario for FY26 is likely to be better than FY25, indicating the continuation of the rally in the Indian equity market. We believe the Indian economy remains well-positioned for growth, serving as a stable haven amidst global economic volatility. We remain confident in India’s long-term growth story, supported by its favourable economic structure, rising capex, and the consumption boost from the recent Union Budget, driving credit growth for banks. This is expected to support double-digit earnings growth, ensuring that Indian equities can deliver strong double-digit returns over the next 2-3 years. Against this backdrop, we foresee Nifty earnings to post excellent growth of 14% CAGR over FY23-27. Financials will remain the biggest contributors for FY26/27 earnings. However, trade policy uncertainty, rupee depreciation, and relatively higher valuations compared to other emerging markets, even after the correction, remain key risks to near-term market multiples. In our base case, we maintain our Mar’26 Nifty target at 26,300 by valuing it at 20x on Mar’27 earnings. (Last month, we upgraded our Base case multiple to 20x from 19x earlier, supported by the favourable addition of high PE stocks in the index, in which Jio Financial and Eternal have replaced Britannia and BPCL).

Bull Case: In the bull case, we value NIFTY at 21x, translating into a Mar’26 target of 27,600. Our bull case assumption is based on the Goldilocks scenario, which assumes an overall reduction in volatility and a successful soft landing in the US market. The market is keenly watching the global growth scenario in 2025 under Trump's presidency. Furthermore, private Capex, which has been sluggish for the last several years, is expected to receive a much-needed boost in the upcoming years, with the expectation of policy continuity. Backed by expectations of political stability, policy continuity, fiscal prudence, an improving private Capex cycle, rural revival, and a soft landing in the US market, Nifty earnings are likely to grow at 17-18% over FY23-27. This would augur well for capital inflows into emerging markets (EMs) and increase the market multiples in the domestic market.

Bear Case: In the bear case, we value NIFTY at 17x, translating into a Mar’26 target of 22,300. We assume the market will trade at above-average valuations, led by the likelihood of a policy shift in the Trump regime. Moreover, we presume that inflation will continue to pose challenges in the developed world. The global market has not seen such elevated interest rates in the recent past. Hence, the chances of going wrong have increased significantly. Nonetheless, the direction of currency, oil prices, and global trade developments will likely put pressure on export-oriented growth in 2025. Moreover, the probability of recession has significantly increased after the imposition of Trump tariffs. These developments will likely bring down the market multiple in the near term. However, based on the recent developments, the chances of this scenario playing out have reduced significantly.

Based on the above themes, we recommend the following stocks: HDFC Bank, Bajaj Finance, Shriram Finance, Avenue Supermarts, State Bank of India, Lupin, Hero Motocorp, Max Healthcare, Colgate, Kalpataru Projects, APL Apollo Tubes, Varun Beverages, Bharti Airtel, Prestige Estates, and Sansera Engineering

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