Indian stock market benchmark indices Nifty 50 and Sensex have been muted in February so far, swinging between gains and losses amid positive and negative cues. While the finalization of US-India trade deal as well as US-EU deal were positive triggers, rising dollar and geopolitical tensions between US and Iran have kept the gains capped. Both Sensex and Nifty 50 have risen over half a percent during the month.
However, brokerage house, PL Capital, in a recent report, stated that Indian equities appeared well positioned for a recovery supported by improving macro fundamentals, easing valuation pressures, and fresh global trade developments.
“Valuations have moderated to around 19–20x price-to-earnings, improving the risk-reward profile meaningfully after the recent correction,” PL Capital said, adding that earnings recovery, currency stability, and policy follow-through would be critical triggers for the next phase of market upside.
The brokerage further highlighted that despite near-term caution, strong domestic institutional inflows, record systematic investment plan contributions, and valuation normalization toward long-term averages improved the overall risk-reward profile for Indian equities.
Market Strategy
From a market structure perspective, PL Capital flagged that January’s correction was accompanied by narrow participation, with only 46.5% of stocks trading above their 50-day moving average and 36% above the 200-day average. However, PL Capital said sentiment indicators suggest markets may have moved past peak pessimism, with improving macro data and a gradual recovery in earnings expectations.
“India equities are near multi-cycle valuation lows relative to gold and silver, offering an attractive opportunity versus precious metals as growth and foreign participation strengthen,” PL Capital said.
PL Capital added that selective participation across large, mid, and small-cap stocks is likely to persist in the near term, but improving breadth could support a broader recovery as policy execution, capital flows, and earnings momentum align. According to PL Capital, while volatility may remain elevated in the short run, the overall setup points towards a gradual strengthening of market sentiment and a more constructive outlook for Indian equities over the coming quarters.
Budget volatility, macro resilience shape near-term outlook
Stock markets witnessed sharp intraday volatility around the Union Budget announcements, particularly following the hike in securities transaction tax, which initially dragged benchmark indices down by over 1% before losses were pared. According to PL Capital, capital market stocks bore the brunt of selling pressure, while selective buying emerged in IT, pharma, and infrastructure-linked stocks on policy support and relative earnings visibility.
On the macro front, PL Capital highlighted that headline CPI inflation rose to 1.33% in December due to higher food prices but remained well below the Reserve Bank of India’s comfort zone, keeping expectations of one final rate cut alive. PL Capital also pointed to firm growth indicators, with the HSBC Flash Composite PMI at 59.5 and industrial production accelerating to a two-year high of 7.8% in December, led by manufacturing and capital goods.
PL Capital further observed that India’s external position remained comfortable, with foreign exchange reserves climbing to a record $709 billion, supported by valuation gains in gold and non-dollar assets. Trade conditions, according to PL Capital, stayed stable despite higher US tariffs, with only a modest widening in the merchandise trade deficit.
Furthermore, it noted that Indian equities received a sentiment boost after the announcement of a landmark India–US trade deal, which reduced US tariffs on Indian goods from 50% to 18%, materially improving export competitiveness across several sectors. According to PL Capital, this development, alongside progress on the India–EU free trade agreement, strengthens India’s medium-term earnings visibility, with tangible benefits expected from FY27 onwards.
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