New Delhi: Indian equities could enter a valuation re-rating phase as corporate earnings gather momentum in the second half and institutional capital returns to the market, according to a report by OmniScience Capital.
The investment firm believes the current stock market consolidation should be viewed as an accumulation opportunity rather than a reason to chase stocks that have already delivered strong returns.
Capex, Power and Banks Offer Opportunities
The report identified businesses benefiting from structural capital expenditure, energy transition and infrastructure development as potential opportunities.
Banking and financial services, infrastructure, power and business services could benefit from resilient credit growth, rising electricity demand and a recovery in corporate capital expenditure.
However, investors should remain selective, particularly in the mid-cap and small-cap segments, where valuations remain elevated despite the broader market correction.
The Nifty Smallcap 250 is trading at a trailing price-to-earnings multiple of around 34 times, while the Nifty Midcap 150 trades at nearly 30 times. In comparison, the Nifty 100 trades at roughly 20 times earnings.
Institutional Interest Returns
Moderating Indian equity valuations have started attracting renewed institutional interest, with foreign investors turning net buyers on several occasions following nearly two years of valuation moderation.
Domestic fundamentals remain supportive, with India's real GDP growth for FY27 estimated at around 7%. However, elevated crude oil prices remain a key macroeconomic risk.
Ashwin K. Shami, President and Chief Portfolio Manager at OmniScience Capital, cautioned that some stocks already price in several years of earnings growth, leaving limited room for disappointment and increasing de-rating risks.
Global Risks Remain Elevated
Global markets continue to face pressure from higher interest rates and geopolitical uncertainty.
US 10-year Treasury yields remain around one-year highs of 4.6%-4.7%, while US-Iran tensions have increased volatility across crude oil and commodity markets.
The US Federal Reserve's September 16 policy decision will therefore remain an important near-term trigger for global yields, liquidity and investor risk appetite.
