Indian equities have corrected meaningfully over the last five months, but it could be in the latter stages of correction due to multiple factors, Motilal Oswal said in its latest India Strategy report.
Nifty 50 has corrected 16 per cent since late September 2024.
It added that the domestic fiscal and monetary policies have turned accommodative, which will boost the demand impulse and growth over the coming quarters.
Motilal believes that the modest earnings growth so far in FY25 could pave way for double-digit growth in FY26.
The market valuations have eased, especially in large-cap stocks, according to Motilal Oswal. Sectors such as BFSI, IT and healthcare gained attention due to stable earnings visibility and long-term growth drivers. BFSI is expected to benefit from steady loan growth, improved asset quality and resilient retail demand.
Among large caps, Motilal prefers Reliance Industries, Bharti Airtel, Hindustan Unilever, L&T, Maruti, Titan, Adani Ports, Bharat Electronics, LTIMindtree, Shriram Finance, JSW Energy and Polycab.
HDFC AMC, Coforge, Page Industries, AU Small Finance Bank, JK Cements, Ipca, Godrej Properties, Brigade, Angel One and Happy Forgings have featured Motilal’s favourite among small-caps and mid-caps.
The broad-based correction is mainly attributed to modest 9MFY25 earnings growth, continuous FII selling since October 24 ($28 billion), a challenging geopolitical backdrop, and a strengthening dollar index that has drawn funds away from various markets.
On the domestic front, Motilal attributed lower corporate earnings growth and a slowing domestic economy drove the current bout of FII outflows, in addition to strengthening US bond yields, rising dollar index and China’s AI breakthrough.
The outflows from Indian equities should start to moderate, it added, citing that global factors such as dollar index, S&P500 and US bond yield (retracing to levels closer to pre-US election results) are also turning around.
The US reciprocal tariff policy may not cast a severe dent, it added.
