The Indian stock market began the new financial year 2026-2027 (FY27) on a strong footing, with the Nifty 50 surging more than 7% in April so far. However, despite the positive momentum following a tumultuous FY26, market volatility remains elevated amid persistent uncertainty surrounding the US-Iran ceasefire, casting a shadow over the global financial markets.
Since the onset of the US-Iran conflict, frontline indices have corrected by more than 10%, making valuations relatively attractive. The Nifty 50 is currently trading at approximately 18x earnings, reflecting a 14% discount to its long-period average (LPA) of 20.9x.
Additionally, India’s valuation premium over other emerging markets has moderated to 27%, compared to a 10-year average of 73% and a peak of 145%.
Stock Market Strategy
To navigate the prevailing market conditions, HDFC Securities recommends adopting a Growth at a Reasonable Price (GARP) strategy. This approach emphasises identifying “mispriced” growth opportunities—buying undervalued growth stocks while avoiding speculative bubbles and steering clear of value traps. The brokerage suggests prioritising growth stocks with valuation discipline.
It also advises against focusing excessively on predicting overall index movements. Instead, investors should concentrate on identifying sectors and stocks with strong potential to generate alpha, as certain segments tend to outperform irrespective of broader market conditions.
Sectoral Outlook for FY27
Negative View
Cement: HDFC Securities maintains a negative stance on the cement sector, anticipating that moderate volume growth will be outweighed by aggressive capacity additions. This is likely to put pressure on capacity utilisation and margins, while limiting pricing power.
Neutral Outlook
The brokerage firm has a neutral view on Banking & Financial Services (BFSI), IT & Exchanges, Consumer Staples, Chemicals, Oil & Gas and Pharmaceuticals.
BSFI: HDFC Securities believes large banks are better placed as net interest margins (NIMs) could improve. While valuations of the sector are attractive now post correction, key monitorables would be the credit cost increase and loan growth slowdown.
Information Technology (IT): Demand remains subdued due to cautious client spending amid geopolitical uncertainties and the deflationary impact of AI. However, new AI-driven deal wins could provide some support. Valuations in the IT sector are currently seen as reasonable.
Consumer Staples: The sector is expected to witness a gradual volume recovery, aided by improving rural incomes. Urban demand, which was previously impacted, is also stabilising. However, input cost pressures remain a concern.
Chemicals: The specialty chemicals sector faces challenges of rising crude led input cost pressures with limited pass-through ability due to Chinese competition. Additionally, there are risks of supply chain disruption as well.
Oil & Gas: Rising crude amid war escalation supports refining margins but hurts marketing margins for OMCs. Upstream companies are partly benefitted by higher realizations, HDFC Securities noted.
Pharma: The brokerage firm expects steady growth and stable margins, led by domestic formulations (chronic therapies) and CDMO. However, US generics price pressure continues to weigh on the sector outlook.
Positive Outlook
HDFC Securities has a positive outlook on sectors like Consumer Discretionary, Industrials & Infrastructure, Real Estate and Automobiles.
Consumer Discretionary: Demand in this sector seems to have bottomed out in FY26, while uncertainty and inflationary pressures could defer demand recovery. HDFC Securities remains selective in the sector as valuations are high.
Industrials & Infrastructure: Healthy demand well supported by capex focus reinforced in the Union Budget. Private capex is improving gradually led by defence, manufacturing and green power, said the brokerage firm.
Real Estate: FY27 is expected to be launch-heavy for most players which will drive presales growth. The recent sharp price correction also provides attractive entry points, it said.
Automobiles: Growth normalization expected post strong growth of FY26; Premiumization and EV growth drivers but geopolitics-led supply chain risk will impact input cost, said the brokerage firm.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
