Axis Securities in its latest CIO note on equity markets has pointed out that past bear markets in India have lasted 6-9 months, adding that the ongoing phase of 'severe correction' has already lasted five months, strengthening its view of back-ended returns for the next fiscal year.
"We believe that FY26 is likely to be an excellent year for the equity markets, but returns could be slightly back-ended," said the note by Naveen Kulkarni, CIO of Axis Securities, who said returns in the coming fiscal would 'exceed' expectations.
"...we expect solid double-digit returns in FY26, which are more likely to exceed the modest expectations of investors," the note added.
The note underscored the view that investing in bear markets has yielded solid returns for long-term investors, and corrections are healthy in longer run. "Market corrections in the long run are very healthy as they remove the excesses in the system and pave the way for sustainable long-term returns for investors," Naveen Kulkarni said.
Read More: Utilise the market correction to buy fundamentally strong stocks
Axis Securities pointed out that the rupee-dollar equation has stabilized this month, and adjusting for the announcement of reciprocal tariffs and its impact on Indian exporters. Foreign investors may be finding Indian assets more attractive, the note said, adding the currency volatility may obscure the return profile but 'stable domestic opportunities' may be turning 'relatively more appealing' for foreign investors.
The note makes an argument that the current phase of selloff has entered an oversold territory and foreign investors should start to look at Indian equities as an attractive bet. "...it is only a matter of time before FIIs turn buyers, especially as the market has clearly entered an oversold zone in the past month," said the Axis note. Foreign investors had turned net buyers of Indian equities on March 18 after a month, buying shares worth Rs 1,463 crore on a net basis.
Axis Securities added that the next trigger for market will be earnings growth where the scope of improvement has increased. "...FY26 will be a better year with an improved corporate earnings profile. The derating could reverse slightly, and the market will see returns in line with earnings growth, which will be in healthy double digits."
The earnings recovery could reflect in the fourth quarter numbers as well, backed by improved government spending, consumption pick up - helped by tax sops in the Budget - and the Kumbh Mela. "Government spending, combined with a sharp increase in tourism activity, will significantly impact the GDP number for the quarter. Apart from the event of Kumbh Mela, overall activity is also showing some signs of pick up. Thus, corporate earnings for the quarter could be healthier than consensus expectations," said the Axis note.
Axis Securities said FY26 will be a 'better year' with improved corporate earnings, and the derating could reverse slightly. "...market will see returns in line with earnings growth, which will be in healthy double digits," the note added.
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