The Indian stock market is gearing up for an impressive surge, with expectations that small-cap and mid-cap stocks will finally break free from their recent underperformance compared to large-cap stocks. Emkay Global Financial Services has reiterated its optimistic outlook for Indian equities, setting a bold target of 26,000 for the Nifty 50 by March 2026. This forecast is bolstered by favorable global trends, supportive domestic policies, and an anticipated stabilization in earnings.
Global Influences Shaping Market Sentiment
One of the significant factors enhancing market confidence is the 90-day suspension of US tariffs. Emkay believes this development substantially mitigates the risk of a severe recession in the US, which could prevent disruptions in financial markets. The brokerage also envisions a recovery in commodity prices alongside an increase in bilateral trade agreements, potentially shielding global economic growth from geopolitical tensions.
Domestic Factors: RBI’s Support and Sectoral Growth
On the home front, the Reserve Bank of India‘s accommodating stance is likely to stimulate consumption growth, even as government spending may see a slowdown. Emkay anticipates that the power sector will emerge as a crucial engine for growth. Furthermore, a gentle slowdown in the US economy could provide a boost to India’s technology sector, which would positively impact employment rates and consumer spending.
Q4 2025 Results: Mixed Yet Promising Signals
The upcoming Q4 results for FY25 are expected to convey a varied narrative. According to Emkay, topline growth for its coverage universe is projected at a modest 2.1% year-on-year (YoY), while profit after tax (PAT) is expected to drop by 7.2%, mainly due to margin pressures and a high baseline in the energy sector. However, excluding energy and a few anomalies, revenues are anticipated to increase by 7.5% and PAT could rise by 10.8% YoY. Notably, margins for sectors excluding BFSI (Banking, Financial Services, and Insurance) are expected to improve to 20.1%, driven by gains in telecom, healthcare, and materials.
Valuation Corrections Indicate a Market Turnaround
A key driver for Emkay’s bullish outlook is the recent drop in stock valuations. The median price-to-earnings ratio of the BSE 500 index has fallen by 21% over the last six months. With earnings beginning to stabilize, Emkay predicts a potential stock market rally, forecasting a resurgence of small-cap and mid-cap stocks, which could lead to a broad-based market upswing.
Strategic Portfolio Adjustments: Focus on Growth Sectors
In alignment with the evolving market landscape, Emkay Global has adjusted its model portfolio significantly. The firm has increased its position in the technology sector, viewing recent price corrections as attractive buying opportunities. Additionally, materials have been upgraded due to expected commodity price rebounds, with Tata Steel being added to leverage this trend.
While Emkay maintains a strong conviction in the consumer discretionary sector, particularly in automotive, it has made the strategic decision to exit the FMCG sector entirely, citing structural challenges and the likelihood of a market derating in a high-beta environment. Financials remain underweight in Emkay’s strategy, as valuations are perceived to be stretched compared to growth prospects.
New Additions to the Portfolio
Recent updates to Emkay’s model portfolio include prominent names like Tata Steel and Wipro, while companies such as National Aluminium, Bharat Petroleum Corporation Ltd (BPCL), Dabur India, and Godrej Consumer Products have been removed.
In conclusion, the Indian stock market shows promising signs of recovery, driven by both global and domestic factors. Investors may want to keep a close eye on these developments as they unfold in the coming months.
