Expert view: Nandish Shah, AVP-PCG Research and Advisory, (Fundamental) Wealth Management, Motilal Oswal Financial Services, is overweight on diversified financials, automobiles, new age tech platforms, manufacturing and industrials, and consumer discretionary sectors. In an interview with Mint, Shah said corporate earnings are expected to clock nearly 15% CAGR over FY28, despite temporary pressure in Q1FY27. Edited excerpts:
Geopolitical uncertainties appear to be the new normal now. How are you looking at the prospects for the stock market in the medium term?
Geopolitical uncertainty has pushed the Indian stock market into another consolidation phase with higher volatility, with elevated crude oil prices and sharp foreign outflows continuing to weigh on sentiment.
Energy security is emerging as a major investment theme because power is becoming a central part of the economy.
The second major theme is defence. India’s Defence Acquisition Council (DAC) has further given approvals for Acceptance of Necessity (AoNs) worth ₹52,000 crore across the army, navy, and air force.
The approvals focus on modernising armed forces against modern drone and anti-tank threats, while also enhancing high-altitude intelligence-gathering capabilities.
We expect these AoN approvals, coupled with those granted over the last two years, to increase the overall addressable market for domestic players and enhance order inflow visibility.
Along with this, the fast-track procurement procedure facilitates procurements exceeding ₹1.3 lakh crore across drones, EW systems, and SDRs, with decisions to be made in 6-12 months.
We expect the defence sector to benefit from these opportunities. Defence companies already have strong order books and can benefit incrementally from export opportunities too.
Over the medium to long term, stock market returns closely mimic corporate earnings growth because a stock price ultimately represents the present value of a company’s future cash flows.
While short-term market movements are driven by investor sentiment, interest rates, and valuation multiples (price-to-earnings ratios), these factors tend to mean-revert over decades, leaving earnings as the primary driver of compounding wealth.
Despite an improving macroeconomic backdrop, the market remains. Fundamentally bottom-up, with growth-oriented themes and companies scaling up expected to be the key beneficiaries.
As leadership becomes increasingly stock-specific, company rankings are likely to evolve meaningfully over the next 3–5 years.
FPIs have started sporadic buying. What could be the reason? Can it sustain, given the potential risks of rate hikes?
India was among the positive performers in the key global markets in June 2026.
While FII flows remained highly sensitive to the external triggers, easing geopolitical risks, lower crude oil prices, improving corporate earnings, and sharp valuation corrections from calendar year 2024 (CY24) highs, along with India’s valuation premium to other emerging markets (EMs) at historic lows, leave fewer reasons for FIIs to remain net sellers for long.
FII flows have started to show signs of improvement, with average daily flows shifting from net selling of around $0.4 billion during the West Asia conflict to net buying of nearly $0.1 billion following the US-Iran ceasefire announcement.
This turnaround has supported the rebound in Indian equities and indicates a gradual improvement in FII sentiment.
The current cautious FII stance largely reflects global capital chasing AI-led opportunities.
As the initial AI capex cycle matures, leadership is broadening to secondary AI ecosystem plays, while improving macros are enhancing India’s attractiveness.
FII holdings in Nifty 500 are at a record low. Persistent FII selling has led to a historic shift in ownership patterns in the Nifty 500 universe, with FII holdings declining to a record low of 17.1% in March 2026, down 180 basis points YoY and 110 basis points QoQ.
In contrast, strong domestic inflows continued to provide market support, with DII ownership in the Nifty 500 universe rising to an all-time high of 20.9% in March 2026, up 170 basis points YoY and 50 basis points QoQ.
With crude oil prices and other commodity prices correcting, inflation expectations have come down.
US consumer inflation cooled significantly in June, with the headline Consumer Price Index (CPI) dropping 0.4% month-over-month and falling to 3.5% annually.
Core CPI also surprised analysts, easing to 2.6% year-over-year. This unexpectedly softer print has calmed markets and dimmed expectations of an impending Federal Reserve rate hike.
What segments of the market have value at this juncture?
We are overweight in diversified financials, automobiles, new-age tech platforms, manufacturing and industrials, and consumer discretionary sectors.
In contrast, we are underweight on private banks, consumer staples, energy, telecom, commodities, utilities, and renewables.
We continue to have a layered bottom-up stance on the BFSI complex.
We are underweight on private banks and overweight on diversified financials and PSU banks.
Within diversified financials, we like exchanges, AMC and the NBFC space.
In new-age tech platforms, we are positive on Eternal, Lenskart, and Coforge.
In manufacturing and industrials, our core long-term theme remains, and among the sub-segments, we are overweight on defence and EMS names.
Our positioning on consumption remains unchanged, with disproportionate overweight on discretionary consumption and zero allocation to FMCG and staples.
Can the earnings recovery be delayed? What could it mean for the market?
India’s underperformance, following its status as one of the world’s best-performing equity markets between 2020 and 2024, has been difficult to reconcile with its strong underlying fundamentals.
A key factor has been the sharp global capital rotation toward a narrow group of AI-driven big tech companies and related technology beneficiaries, which has left non-AI markets, such as India, bearing the brunt of this shift.
Today, the backdrop has turned considerably more constructive. Geopolitical concerns have mellowed, energy prices have eased from their peaks, and global oil trade has largely normalised.
The earnings outlook has strengthened meaningfully, with corporate earnings expected to clock nearly 15% CAGR over FY28, despite temporary pressure in Q1FY27.
Meanwhile, valuations have corrected across indices and sectors, with large caps and several heavyweight sectors now trading below their historical averages.
Additionally, India’s valuation premium compared to global peers has compressed to near historical lows.
After nearly two years of consolidation and underperforming most global markets over the past year, Indian equities appear to have largely priced in the key downside risks.
Against this backdrop, we present our views on the upcoming Q1FY27 earnings season, which will reflect the anticipated impact of the West Asia crisis and higher energy prices.
We expect a modest 3% decline in earnings across the Motilal Oswal Financial Services Limited (MOFSL) universe, primarily weighed down by oil marketing companies (OMCs) affected by elevated crude prices.
Excluding OMCs, PAT growth is projected at 14% YoY.
The MOFSL large- and mid-cap universes are expected to report PAT declines of 2% YoY and 14% YoY, respectively, primarily due to losses in the OMC segment within the oil and gas sector.
Conversely, the MOFSL small-cap universe is expected to post a healthy 20% YoY earnings growth, supported by a favourable base (versus a 1% YoY decline in Q1FY26) and driven largely by financials.
The overall earnings growth is anticipated to be healthy.
It will be anchored by financials – led by NBFC-lending (+27% YoY) and both private banks (+10% YoY) and PSU banks (+9% YoY) – metals (+31% YoY), telecom (3.3 times YoY jump in profit, driven by Bharti Airtel and reduction in losses of Vodafone Idea), technology (+14% YoY), capital goods (+10%), retail (+27%), consumer durables (27%), and consumer (+6%).
Building materials (36%) and EMS (+29%) were among the other sectors that are expected to contribute positively to earnings.
In contrast, oil and gas is expected to report a 94% YoY decline in profits, led by OMCs, which are expected to post a loss of ₹36,400 crore, dragging down the Q1FY27 MOFSL aggregate earnings.
Further, automobile (-3%), healthcare (-3%), and cement (-13%) are anticipated to hurt earnings moderately.
We reduce our FY27E/FY28E Nifty EPS by 0.8% each and expect the same to grow 15% and 16% YoY to ₹1,225 and ₹1,422, respectively.
The telecom, logistics, healthcare, BFSI, and consumer sectors have contributed to the majority of the reduction in our FY27 earnings estimate.
How should retail investors invest in this market? Should equities still remain the largest holding? Should we look at government bonds?
Asset allocation remains the key to wealth creation. An investor should be able to balance the risk-reward relationship.
Equities must remain your primary vehicle for long-term compounding, but your allocation should adapt to your specific horizon.
Retail investors should adopt a balanced asset allocation strategy with a cautious, staggered approach to equities while aggressively locking in high-yielding fixed income.
Equities should remain your largest holding if you have a long-term horizon (over 3 to 5 years), as they remain unmatched for capital appreciation.
However, given the current environment of sticky global inflation and extended equity valuations, you should absolutely look at government bonds, which are offering some of their most attractive real yields in years.
There are expectations of three hikes by the Fed this year. How can it impact emerging markets like India?
Expectations of three interest rate hikes by the U.S. Federal Reserve typically trigger a capital outflow from emerging markets, causing currency depreciation and increased borrowing costs in countries like India.
Foreign investors pivot back to lower-risk, dollar-denominated assets. Indian equity indices face short-term volatility and selling pressure.
Unlike previous cycles like the 2013 “taper tantrum” India’s structural fundamentals provide a stronger safety net. High forex reserves offer the RBI deep ammunition to protect the rupee.
Resilient corporate earnings and GDP growth attract sticky long-term capital. Inclusion in global indices provides a steady baseline of inflows.
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Disclaimer: This article is for educational purposes only and does not constitute investment advice. 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.
