The Indian stock market may deliver a double-digit return next year, with Nifty 50 touching the 29,000 mark in the next 12 months, says Seshadri Sen, Head of Research and Strategy, Emkay Global Financial Services. In an interview with Mint, Sen said the mid and small-cap segments may outperform over the next one to two years, but a bottom-up and selective stock-picking approach is critical, with valuation discipline. Here are edited excerpts of the interview:
Why is the domestic market not able to see a sustained bull trend?
The domestic market was affected by two major headwinds. First, the impact of twin tightening (fiscal and monetary) in the calendar year 2024 (CY24) had a lagged impact on growth and affected earnings.
The broader market saw significant earnings downgrades from late 2024. Second, global factors were also unfavourable. The high tariffs imposed by the US resulted in a weakening rupee, putting foreign investors off. Moreover, the AI ​​boom sucked capital out of India into developing markets like the US.
What is your 12-month target for the Nifty 50?
The outlook for 2026 is constructive, with expectations that it will be meaningfully better than 2025. The 12-month target for the Nifty is around 29,000, implying low double-digit returns.
While short-term volatility may persist due to currency stress and trade-related uncertainties, any meaningful correction is seen as a buying opportunity, supported by improving earnings visibility and macro stability.
Can we expect the mid and small-caps to outperform next year?
Yes, mid and small-caps (SMIDs) are expected to outperform over a one- to two-year horizon, though near-term volatility may continue.
SMIDs are delivering higher earnings growth, improving balance sheets, and gaining share over large companies in several sectors such as financials, IT services, healthcare (non-pharma), EMS, and platform businesses.
A bottom-up, selective stock-picking approach is critical, with discipline on valuations. Large caps may offer stability, but alpha generation will largely come from SMIDs.
How do you expect a delayed India–US trade deal to affect our markets?
A delayed India–US trade deal keeps pressure on the rupee, which in turn makes foreign investors cautious and adds short-term market vulnerability. Some export-oriented sectors like textiles and seafood remain impacted.
However, the delay is not viewed as structurally negative. The deal is considered inevitable, critical for both countries, and once concluded, it could act as a major catalyst for currency stability and FII inflows.
What are the key factors that indicate corporate earnings could revive from Q3 onwards?
Several indicators suggest that corporate earnings are poised for a revival. FY27 earnings estimates have started moving upward after a prolonged period of downgrades, while the share of earnings upgrades is increasing and downgrades are steadily declining.
At the same time, credit growth appears to be bottoming out, particularly in retail and unsecured lending, which should support consumption and business activity.
Importantly, the positive impact of GST cuts, interest rate reductions and regulatory easing has not yet been fully reflected in corporate earnings.
Additionally, Q2 results already delivered a higher proportion of positive earnings surprises, even before the benefits of the GST measures begin to flow through.
What is your assessment of the growth–inflation dynamics of India? Is weakness in nominal GDP a matter of concern?
The headline inflation is bottoming out but should remain within the RBI’s tolerance band for the next three to four quarters. The weakness in nominal GDP is slightly worrying, but there are enough stimuli, both fiscal and monetary, that should enable a recovery in CY26.
The weak growth, however, is just one of the disinflationary forces in play – there are supply-side factors like weak commodity and food prices that are also contributing.
What are the sectors you are bullish on for the next one to two years?
The key bullish sectors include discretionary consumption, encompassing automobiles such as passenger vehicles and two-wheelers, consumer durables like air conditioners, and internet- or platform-led consumption themes.
Industrials remain attractive, supported by sustained government capital expenditure across areas such as railways, defence, power and renewables.
Healthcare, especially non-pharma segments, continues to offer growth opportunities, while utilities and the power sector represent a multi-year structural growth story.
In financials, the preference is for select small and mid-sized banks and NBFCs rather than large banks.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
