The Indian stock market is swinging between gains and losses, unable to hold altitude. The Sensex slipped over 280 points, while the Nifty 50 dropped below 25,650 during the session on Wednesday, February 18. Both indices looked set to snap their two-day winning run.
The domestic market is witnessing volatility amid a lack of fresh triggers. However, experts believe the domestic market could be on the cusp of a trend reversal. They highlight the following five factors that suggest the market may see a healthy upside this year:
Key factors that can drive the stock market
1. Earnings growth
The Q3FY26 results of Indian corporates came on expected lines, and experts believe the numbers will improve further in FY27.
“The better-than-expected Q3 results and indications of continuing momentum in earnings growth, going forward, are positive factors that will keep the market resilient,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.
According to Motilal Oswal Financial Services, the Nifty delivered a 7% YoY PAT growth versus its estimate of +6%. Nifty reported a single-digit earnings growth for the seventh consecutive quarter since the pandemic (June 2020).
Brokerage firm YES Securities highlighted that Q3 revenue of NSE 200, excluding financials and OMC, experienced 11.9% YoY growth, surpassing the nearly 7.8% average run-rate observed in the past eight quarters.
EBITDA margins, however, contracted by 33 bps YoY and 26 bps QoQ, YES Securities highlighted. A lower tax outgo supported profitability, driving PAT growth of 15.5% YoY.
“With a favourable base, improving economic conditions, and an uptick in factory gate inflation, revenue growth is expected to strengthen going forward,” said YES Securities.
2. FII buying
Experts are hopeful that there will be sustained buying by foreign institutional investors (FIIs) in the near term due to earnings recovery, a stable rupee, fair valuation in large caps, and an India-US trade deal.
“Early signs of a shift in the investment strategy of FIIs are visible now. In the cash market, FIIs have been buyers in 8 of the last 13 trading days. This trend and improving prospects for corporate earnings bode well for the market,” said Vijayakumar.
Moreover, volatility in the US markets and the outperformance of other emerging markets also signal that Indian stocks will be on the radar of FIIs.
“FIIs have been investing heavily in the US, but many have reportedly faced losses of around 10% in dollar terms. Additionally, if weakness continues in US AI-related stocks, FIIs may reduce their exposure there and redirect capital to markets like India, where earnings visibility remains strong. Other markets such as Taiwan, which performed strongly earlier, may also not continue to outperform, making India relatively attractive,” said Vijayakumar.
3. Fair valuations of large-caps
Nifty’s current PE at 22.5 is near its two-year average PE of 22.3. Experts say valuations of large caps are fair now, even as those of mid and small-caps are still elevated.
“Valuations for large-cap stocks are now fair. Mid and small-caps remain slightly expensive, but not excessive. Mid-caps are trading at around 28 times earnings, while small-caps are at around 24 times earnings. So, valuations are not extreme, leaving limited room for disappointment,” said Vijayakumar.
Brokerage firm PL Capital highlighted that valuations have corrected meaningfully over the past year.
“India’s premium to emerging markets has compressed materially, improving relative attractiveness from a medium-term perspective. While valuation normalisation alone may not drive an immediate market re-rating, it provides a more favourable entry point as earnings visibility improves,” said PL Capital.
4. Healthy macro outlook
The Indian growth story remains strong despite geopolitical challenges.
The Economic Survey 2026 projected India’s real GDP growth of 6.8–7.2% in FY27, underscoring strong domestic demand, sustained public capital expenditure, and improving private sector balance sheets.
The Union Budget 2026 showed the Indian government remains committed to fiscal prudence, without compromising on growth.
Capital expenditure target was increased to ₹12.2 lakh crore, while the fiscal deficit target was set at 4.3% of GDP.
Inflation, too, is expected to remain within the RBI’s tolerance band of 2-6% in FY27.
“Easing inflation and adequate liquidity conditions provide room for supportive financial conditions, which should gradually transmit into credit growth and corporate profitability,” said PL Capital.
5. Volatility in gold, silver prices
Sharp gains in gold and silver over the last year have driven retail investors to the precious metals. However, of late, gold and silver have corrected sharply, witnessing high volatility.
Experts believe retail money will start coming to equities in the coming months with earnings growth amid healthy growth-inflation dynamics. This will be a key driving factor for the domestic market.
According to PL Capital, equity markets may remain range-bound in February, reacting to global cues, currency movements, and earnings-related developments.
However, as per PL Capital, from an asset allocation perspective, the medium-term investment case for Indian equities continues to strengthen.
“The domestic growth cycle appears to be at an inflection point, supported by fiscal thrust, improving monetary conditions, and gradual recovery in private investment. As earnings momentum builds into FY27, markets are expected to transition from macro-driven consolidation toward fundamentals-led performance,” said PL Capital.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, 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.
