Mumbai: India’s market outlook is turning increasingly constructive, as resilient GDP growth, improving earnings expectations and supportive monetary policy begin to lift investor sentiment, a new report said on Monday. The data compiled by SBI Funds Management noted that while near-term challenges persist, the overall environment for equities is gradually strengthening, setting the stage for a measured but steady improvement ahead.
According to SBI Funds, India’s real GDP growth remains well above forecasts, with the economy expanding 7.8 per cent in Q1 FY26 and 8.2 per cent in Q2 FY26. Equity markets posted healthy gains in November, with the Nifty rising 2 per cent and the Sensex climbing 2.2 per cent, the report authored by Rajeev Radhakrishnan, CFA (CIO – Fixed Income) and Gaurav Mehta, CFA (Head – SIF Equity) said. SBI Funds highlighted that large caps continued to outperform mid-cap and small-cap stocks -- indicating a narrowing market breadth.
In the BSE 500 universe, nearly two-thirds of stocks underperformed the index on a rolling 12-month basis. The fund house expects this polarization to persist, as large caps are still more reasonably valued than the broader market. Corporate earnings in the recent quarter were weak but broadly in line with expectations. Profits rose in sectors such as metals, NBFCs, capital goods, cement and telecom, but private banks, oil and gas (excluding OMCs), automobiles, consumer companies and insurers reported softer results. Encouragingly, SBI Funds noted that earnings expectations have begun to stabilise.
The number of upgrades is now close to matching downgrades, a positive shift after months of downward revisions. SBI Funds said consumer sentiment is improving due to income tax and GST cuts, easing inflation, and the expected transmission of policy rate reductions. "Structural reforms such as new labour codes are also expected to support growth," the report mentioned. Even so, the fund house cautioned that global trade uncertainties and fiscal pressures could create temporary headwinds. Market sentiment has been improving as well, the report stated. SBI Funds expects future gains to be gradual, with more opportunities emerging at the stock-specific level rather than from broad market rallies.
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