Wth the backdrop of a recovering economy and an early-stage corporate earnings cycle, the Indian market is trading at roughly 20x one year forward, which is below the 5-year mean, according to Chakri Lokapriya of LGT Wealth India.
This demonstrates no froth in valuations, setting the stage for an upside to Indian markets, barring significant geopolitical tensions, he said in an interview to Moneycontrol.
With a stable Indian economy and the uncertainty of the India-Pakistan conflict, the Chief Investment Officer at LGT Wealth India believes the RBI is likely to stay on course with two additional rate cuts of 50 basis points for the remainder of 2025 unless there is a marked rise in border conflict.
Given the clearing of excessive valuation froth, do you expect increased interest from FPIs in Indian equities in the coming months?
Recent high-frequency indicators present a detailed view of the economy, showing an overall improvement in activity compared to the previous quarter. Rural demand has shown more significant signs of recovery, driven by increased sales of two-wheelers and tractors, which are essential indicators of rural consumption and agricultural sentiment. In contrast, with limited discretionary spending, urban consumption has remained relatively subdued.
On the supply side, the manufacturing sector has demonstrated mixed performance. While the manufacturing Purchasing Managers' Index (PMI) improved compared to the previous quarter, industrial production growth has moderated. However, construction activity has gained momentum, with steady improvement in related indicators over the past five months.
With the backdrop of a recovering economy and an early-stage corporate earnings cycle, the Indian market is trading at roughly 20x one year forward, which is below the 5-year mean. This demonstrates no froth in valuations, setting the stage for an upside to Indian markets, barring significant geopolitical tensions.
Do you believe earnings downgrades will continue in the first half of FY26, followed by a recovery in the second half?
Overall, the current macro environment, supported by capital expenditures and consumption, limits downside risks to earnings, reinforcing an overweight stance on equities over bonds. Investors should view market dips as opportunities to align with long-term asset allocation goals, preferring large-cap stocks for favourable valuations and a greater margin of safety.
Which sectors do you expect to lead the earnings recovery in the second half of FY26?
Consensus estimates for FY25 and FY26 have been revised downward by about 2 percent, creating a low bar favouring a favourable beat-to-miss ratio in the NIFTY500. While sectors like IT, FMCG, and financial services have seen the most misses, aggregate profit after tax (PAT) growth has returned to positive territory with a 4 percent increase.
The NIFTYNEXT50, however, has shown a stronger year-on-year growth of 23 percent for Q4 FY25. Company guidance during this earnings season has led to slightly higher earnings growth expectations for FY26-27, especially in cyclical sectors like cement, energy, and real estate. Conversely, large-cap IT and FMCG EPS growth will likely be weaker than consensus expectations.
What are the significant challenges for equity markets in the remainder of FY26? Is the India-Pakistan situation a substantial risk to the market rally?
In light of the current war-like situation on the India-Pakistan border, we highlight that if Kargil is a reference point, continued volatile news flow of claims from both countries will keep the market volatile. During the Kargil skirmish, India's markets fell 7 to 9 percent during the War. On evidence that India was winning and the War was ending, markets were up 15 to 18 percent in the following month.
With that background, defense, hospital, and financial services companies present short-term opportunities while being fundamentally strong sectors.
Do you expect the economy to grow at over 6.5 percent in FY26?
The economy is on track for the growth that the RBI and the Indian government agencies have targeted.
What scenarios could prompt the RBI to initiate an aggressive rate-cutting cycle in the rest of FY26?
The services sector grew strongly in the fourth quarter of FY25, supported by substantial increases in GST collections, e-way bills, toll receipts, and port cargo volumes. Robust domestic demand, proactive monetary and fiscal policies, and a stable external environment foster a favourable climate for sustained investment flows.
With a stable Indian economy and the uncertainty of the India-Pakistan conflict, the RBI is likely to stay on course with two additional rate cuts of 50 basis points for the remainder of 2025 unless there is a marked rise in border conflict.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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