The Indian equity market is currently navigating a landscape where external factors overshadow domestic concerns, according to Saion Mukherjee, the head of India equity research at Nomura. In a recent media briefing, he emphasized that while there’s an earnings risk present, a stable external environment could lead to positive returns by year-end.

External Factors and Market Performance

Mukherjee pointed out that despite the ongoing discussions about tariffs, the real impact remains to be seen. He expressed cautious optimism about the market’s potential, stating, “If the external situation remains manageable, we could still witness favorable returns as the year progresses.”

• Current Market Sentiment: Domestic capital flows are showing signs of wear, but they’re not declining significantly.
• Foreign Investment Trends: Foreign institutional investors have been net sellers in recent months, which indicates that their participation in Indian equities is relatively low.

Earnings Growth Expectations

Mukherjee’s outlook for the stock market is tempered, predicting returns to be in the low to mid-single digits. He remarked, “After an impressive run over the last few years, this outlook is reasonable.” In a recent report, Nomura revised its target for the Nifty 50 to 24,970 by March 2026, accounting for an anticipated 5% downside risk to corporate earnings consensus.

• Valuations and Earnings: Mukherjee highlighted that the market is currently closer to its valuation peak. He noted that corporate earnings had an unexpectedly robust performance from FY19 to FY24, with the COVID-19 pandemic acting as an unexpected catalyst.

Market Growth Projections

When discussing growth expectations, Mukherjee observed that the market typically begins the year with anticipated earnings growth of 15-16%. However, he noted that this expectation often gets revised downward as the year progresses.

Economic Challenges Ahead

Mukherjee also addressed the broader economic challenges, including the investment cycle and capital expenditures, particularly in light of fluctuations in the export sector. He expressed concern about potential repercussions from uncertainties in the U.S. and global markets that could impact the IT sector. Nevertheless, he acknowledged some resilience in domestic industries.

Global Economic Outlook

In response to a question regarding the potential spillover effects from an impending U.S. recession, Rob Subbraman, head of global macro research, clarified, “While we are close to a recession, we are not predicting one. A slight global slowdown can actually benefit India’s equity market since domestic earnings are less reliant on exports.”

As the Indian market grapples with these dynamics, investors are advised to remain vigilant and consider both domestic and international factors in their decision-making processes.