The Indian stock market benchmark, the Nifty 50, is struggling to sustain the 26,000 mark. A baffling question that market participants are grappling with is why the forward-looking market is not discounting a potential earnings growth from Q3 onwards, valuation comfort, and a healthy macroeconomic backdrop.
There appear to be three key reasons behind the market’s recent subdued performance: the rupee’s sharp decline against the US dollar, persistent uncertainty over an India-US trade deal, and relentless selling by foreign institutional investors (FIIs).
The rupee fell 26 paise to an all-time low of 90.75 against the US dollar in intraday trade on Monday. FIIs have sold off Indian stocks worth ₹19,605 crore in the cash segment this month.
What should investors do? Experts say buy quality stocks available at fair valuations.
They express optimism about the prospects of the Indian stock market in the coming year due to favourable growth-inflation dynamics, monetary easing, signs of earnings recovery, and reasonable valuations in large caps.
Prashanth Tapse, Senior VP (Research), Mehta Equities, underscored that synchronised interest rate cuts by both the US Federal Reserve and the RBI create a distinctly supportive macro backdrop for Indian markets.
This combination enhances liquidity in the system, supports equity valuations through a lower discount rate, and sets the stage for an earnings upgrade cycle as interest costs decline and operating leverage improves.
Tapse highlighted that rate-sensitive sectors such as banks, NBFCs, real estate, infrastructure, automobiles and capital goods tend to outperform in the early phase, while consumption and infrastructure benefit as the growth impulse sustains.
“While we remain watchful of near-term risks such as potential pressure on margins, currency volatility and the possibility of liquidity-driven valuation excesses. Overall, the dual rate-cut environment is structurally positive for Indian equities, provided global growth remains stable and domestic earnings delivery keeps pace with elevated market expectations,” said Tapse.
Stocks to buy
Here are five stocks Prashanth Tapse recommends buying for the long term as they appear poised for growth in the low-interest-rate regime:
L&T | 12-month target price: ₹4,520
Tapse believes Larsen & Toubro (L&T) stands to meaningfully benefit from a sustained lower interest rate environment.
Declining borrowing costs tend to accelerate both government-led infrastructure spending and private sector capex, directly improving the pace of project awards across core.
Lower interest rates also enhance the execution economics of large EPC projects by reducing financing costs, improving project IRRs and easing working capital pressures, which in turn supports margin stability and cash flow generation.
“With a robust and diversified order book, strong balance sheet and improving return ratios, L&T is well positioned to capture incremental opportunities in the ongoing capex upcycle, providing strong medium- to long-term earnings visibility,” said Tapse.
Godrej Properties | 12-month target price: ₹2,369
According to Tapse, Godrej Properties is well-positioned to benefit from a sustained lower interest rate environment.
Declining home loan rates improve housing affordability by reducing EMIs, which typically translates into stronger residential demand across key urban markets.
This supports higher booking momentum, faster inventory absorption and improved pricing traction for quality developers.
Additionally, lower interest costs ease the company’s financing burden, enhancing operating cash flows and balance sheet strength.
“Combined with its strong brand, diversified project pipeline and asset-light development model, Godrej Properties is likely to see improved earnings visibility and return ratios in a rate-cut cycle,” said Tapse.
Tata Motors PV | 12-month target price: ₹415
Tapse said Tata Motors’ passenger vehicle business stands to benefit meaningfully from a lower interest rate environment.
Softer lending rates reduce vehicle financing costs, improving affordability and encouraging replacement as well as first-time purchases.
This is particularly supportive for higher-priced passenger vehicles and electric vehicles, where EMI sensitivity is relatively high.
Improved affordability is likely to drive volume-led growth, enhance capacity utilisation and support operating leverage.
“Coupled with Tata Motors’ strong product pipeline, growing EV penetration and expanding market share, a rate-cut cycle strengthens earnings visibility for the PV segment,” said Tapse.
Bajaj Finance | 12-month target price: ₹1,140
As per Tapse, Bajaj Finance is a key beneficiary of a declining interest rate cycle, as lower borrowing costs directly support margin expansion and profitability for well-capitalised NBFCs.
A softer rate environment improves spreads, enhances return ratios and allows the company to price loans competitively without compromising asset quality.
Additionally, lower EMIs stimulate demand for consumer durables, personal loans and other EMI-based financing products, driving faster loan book growth.
“With its strong underwriting framework, diversified product portfolio and superior execution capabilities, Bajaj Finance is well-positioned to compound earnings in a low-rate environment,” said Tapse.
Ather Energy | 12-month target price: ₹780
As per Tapse, Ather Energy stands to benefit from a lower interest rate environment as softer lending rates improve affordability for two-wheelers, particularly in the premium electric scooter segment, where financing plays a key role in purchase decisions.
Cheaper vehicle loans and EMI options can meaningfully support demand recovery and volume growth.
Additionally, rising petrol prices further strengthen the value proposition of electric two-wheelers by improving the total cost of ownership economics.
“Improved affordability, combined with increasing EV awareness and supportive policy tailwinds, enhances Ather Energy’s growth visibility in a rate-cut cycle,” said Tapse.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of the expert, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
