March has seen a promising recovery in the stock markets after five months of consecutive declines, yet Caprize Investment, a prominent smallcase manager, predicts that a true market reversal may not materialize until the latter half of the financial year 2026 (H2FY26). Experts at Caprize suggest that the current phase of market correction and consolidation will likely endure, especially as capital outflows persist over the next couple of quarters, primarily due to a lack of significant policy reforms.

Market Trends and Earnings Expectations

As we approach the financial year 2027 (FY27), Caprize foresees that high-growth sectors with robust earnings visibility are poised for stabilization. The brokerage believes that as market projections adjust following the Q1 FY26 earnings reports, high-growth stocks will begin to look more attractively priced, paving the way for the next cycle of earnings upgrades.

Importance of Liquidity for Market Recovery

Caprize emphasizes the critical role liquidity plays in the recovery of the market. While liquidity has been plentiful in recent years, the upcoming quarters may present challenges. Despite this potential hurdle, several high-growth stocks—those exhibiting a year-on-year growth of 25% or more—are currently valued at approximately 15-20 times their one-year forward earnings. As the market stabilizes, these valuations may become increasingly appealing based on projections for FY27.

Investment Opportunities for 2025

Caprize Investment has identified several promising investment themes and stock picks for 2025. They spotlight key sectors that are expected to thrive:

• Discretionary Consumption: Targeting value retail, jewelry manufacturers, and mid-to-premium hotels, recommended stocks include V2 Retail, Style Bazaar, Sky Gold, Samhi, and Kamat.

• Power Sector: Focusing on transformers and transmission EPC projects, stocks like Transformers & Rectifiers India, Shilchar, and Rajesh Power are noted.

• Manufacturing: Highlighting the Make in India initiative, stocks such as Garware Hitech and Vishnu are recommended.

• Renewables: Companies like Insolation Energy, KP Energy, and Shakti Pumps are expected to see growth.

• Water Treatment: Ceinsystech is identified as a key player in sustainable water management solutions.

The brokerage underscores that discretionary consumption remains a vital focus, particularly in retail and hospitality. Additionally, the power sector offers substantial investment prospects, while manufacturing is anticipated to benefit from supportive government policies.

Sector Performance Insights

While some industries appear set for growth, others may encounter challenges stemming from macroeconomic and sector-specific issues. Sectors such as oil & gas, BFSI, automotive, defense, railways, chemicals, consumer non-discretionary, and IT are expected to lag due to various concerns. In contrast, sectors like discretionary consumption, power, manufacturing, renewables, data centers, and water treatment are likely to thrive, presenting substantial investment opportunities.

Strategic Investment in a Volatile Landscape

Piyush Mehta, Chief Investment Officer (CIO) at Caprize Investment, remarks, “The evolving market landscape in 2025 brings both challenges and opportunities. While short-term volatility may continue due to liquidity constraints and earnings normalization, sectors such as discretionary consumption, renewables, and specialized manufacturing present significant long-term potential. Investors focusing on earnings visibility and valuation discipline will be best equipped to navigate this shifting environment.”

As the market continues to fluctuate, understanding sector dynamics and adopting a strategic investment approach will be essential for capitalizing on emerging opportunities.