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Emkay Institutional Equities, a part of Emkay Global Financial Services Limited held a virtual media webinar on the outlook for the Indian equity markets. The research house expects near-term weakness and heightened volatility for Indian equities in Q1CY25. However, a gradual consumption recovery is anticipated in H2CY25, led by an improvement in employment trends, a revival in unsecured lending, and an uptick in welfare spending. Emkay Institutional Equities project Nifty to be at levels of 25,000 by December 2025, and FPI selling to subside by Q2CY25.

Key sector calls

Emkay Institutional Equities maintains an Overweight stance on Discretionary, Real Estate, and Healthcare, while remaining Neutral on Industrials, IT, and Energy. Financials, Staples, and Materials are designated as Underweight due to structural concerns and valuation pressures.

The firm anticipates discretionary consumption recovery within 2-3 quarters, underpinned 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.

Sectoral shifts include a downgrade of Energy and Technology to Neutral, an upgrade of Consumer Discretionary to Overweight, and continued Underweight positioning on Financials and Staples.

Top investment calls

The firm’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.

Capex growth

Following a 31% CAGR in capex growth between FY21-24, a slowdown to 10-13% is anticipated, primarily due to election-related spending constraints. However, a rebound in FY26 is expected as policy certainty returns. While capital-heavy sectors face challenges, green energy continues to be a bright spot.

FPI selling expected to subside

Despite persistent selling pressures, FPI activity is likely to stabilize post-1QCY25, with valuations having moderated and earnings forecasts bottoming out over the next 2-3m. A peak in the U.S. Dollar Index (DXY) should also ease rupee depreciation concerns and help stem FPI selling. The RBI’s liquidity injection could stimulate domestic equities and benefit the BFSI sector.

Corporate Earnings

The earnings downgrade cycle appears to be concluding, with consensus Nifty estimates for FY26 already adjusting downward by 3.9% since January 2025. The firm remains constructive on mid-teens earnings growth for FY26, driven by Financials, Metals, and Energy.

Commenting on the outlook, 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.”

Seshadri Sen, Head of Research and Strategist – Institutional Equities, Emkay Global Financial Services added “Despite short-term headwinds, the structural investment case for India remains intact. The shift in sectoral dynamics presents opportunities, particularly in Discretionary, Real Estate, and Healthcare, where we see strong growth potential.”

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