Daily Voice: ‘No sharp downside for Nifty unless all pillars shake,' Jaspreet Arora sees 28,000 target

The recent Fed meeting confirmed a cautiously hawkish stance, with rates held steady and updated projections signalling only two rate cuts for the year, down from prior expectations. But a closer look at the dot plot and Fed Chair Jerome Powell’s remarks reveals increasing disagreement within the Fed, with a few officials now expecting no rate cuts this year. This shift is largely driven by persistent inflation, particularly in core PCE, which remains sticky around 2.8–3.0 percent. A key new development is the inflationary pressure from recently announced US tariffs on Chinese imports, including EVs, solar components, and tech hardware.

We thus believe the chances of two rate cuts in the second half of 2025 are now low, with a single cut in Q4-2025 likely, if inflation shows convincing deceleration. Otherwise, the Fed may choose to delay easing into early 2026. The Fed’s cautious tone, combined with external trade frictions, reinforces the view that monetary policy will remain tighter for longer than markets had anticipated.

Do you think the market should be overly concerned about tensions in West Asia, particularly with respect to crude oil prices?

Brent crude has already risen sharply since the conflict began, reflecting heightened risk premiums. Any meaningful disruption in the Strait of Hormuz, a critical chokepoint for over 60 percent of India’s crude imports, could significantly impact energy security, widen the current account deficit, and put pressure on the rupee.

Further, do you think the equity market will avoid significant downside from current levels? However, in the event of a sharp correction, what could be the possible reasons?

The last 12 months have seen major events like national elections in India and the US, tariff wars, geopolitical tensions, and multiple wars. Despite all this, the Nifty’s one-year return has been 6 percent, depicting the resilience of the Indian economy and its prospects.

The Q4 FY25 earnings have not been disappointing as was the case in earlier quarters. Immediate potential triggers include robust quarterly performance, besides the support from flows from both DIIs and FIIs. Above normal monsoon, softness in crude prices, dip in inflation rates, and continuation of rate cuts by RBI will also aid the earnings profile. A benign volatility index and the US Dollar Index hovering well below 100 also augurs well.

Nifty is currently trading at 22x FY26 EPS and 19 FY27 EPS. Our fair price on Nifty is over 28,000, over the next 12 months.

So we firmly believe a significant downside from current levels is ruled out. A sharp correction would come only if all the pillars feel tremors simultaneously i.e. lacklustre participation from FIIs & DIIs, earnings disappoint for a second straight year, and sentiment index continuing to remain low due to geopolitical events globally.

Do you believe earnings growth could surprise in FY26?

Nifty earnings growth in FY26 is well-positioned to surpass the current estimate of 12 percent, with most of the earnings downgrades from FY25 now behind us. The estimates factor in the headwinds from muted global demand impacting export-linked sectors such as IT and pharmaceuticals.

Looking ahead, the macroeconomic backdrop is turning increasingly supportive. CPI is easing below 3 percent, well below the RBI target level of 3.7 percent for FY26. Potential rate cuts in the second half of FY26 are expected to stimulate credit growth.

A normal monsoon that boosts rural incomes, improving sentiment in urban markets, is expected to further fuel discretionary consumption. In the commodity space, sectors such as metals, cement, and energy, which saw earnings compression in FY25 due to volatile prices and margin erosion, are now entering a cyclical recovery. Industrials and capital-intensive sectors may post faster-than-expected growth on the back of India’s capex revival.

Which sectors are likely to drive earnings growth in FY26?

We believe Financials, Consumer, and Industrials will lead India Inc.'s earnings growth in FY26. Financial services with over 38 percent weight in the Nifty are projected to deliver 13 percent growth, supported by bank credit growth of 12–13 percent led by easing interest rates and regulatory support.

The consumer sector, including FMCG and discretionary segments, is also poised for strong earnings growth of 12 percent, aided by a revival in rural demand, declining input costs, and favorable regulatory changes. Industrials and capital goods are expected to post over 15 percent earnings growth. Sectors like cement and metals which have a lower weight in the index, are expected to grow 30-40 percent yoy in FY26.

Is the insurance sector currently looking attractive?

India’s insurance sector is on the cusp of a long-term structural upswing, driven by low penetration, rising awareness, and regulatory tailwinds. In life insurance, although the penetration is at 2.8 percent of GDP, the focus has historically been on savings products. The real opportunity lies in individual protection, where the sum assured stands at just 22 percent of GDP, compared to 153 percent in Malaysia, highlighting a massive protection gap and room for long-term growth.

On the non-life front, penetration is even lower at 1.0 percent, against the emerging market average of 1.3 percent. Segments like health and motor are witnessing strong momentum, supported by rising healthcare costs, compliance, and digital distribution. Retail health premiums are growing in double digits, and penetration in Tier 2/3 cities is improving steadily. The regulator’s push for innovation, bundled products, and a vision of ‘Insurance for All by 2027’ further strengthens the outlook.

With compelling demographics, increasing risk awareness, and supportive reforms, the insurance sector offers a powerful combination of under-ownership, under-penetration, and high compounding potential for long-term investors.

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