The Indian stock market has remained range-bound with a negative bias since the start of July. The trend began to shift in late June, after benchmark indices touched a nine-month high.
Following the rally that pushed the Nifty 50 and Sensex near record highs, investors have been awaiting clearer earnings signals to justify valuations. However, a muted start to the June-quarter results has dampened sentiment. The absence of fresh triggers and uncertainty surrounding a potential India–US trade deal has also kept investors cautious.
The correction has been more pronounced in mid- and small-cap segments, due to their lower liquidity and greater sensitivity to risk-off sentiment. Amid this backdrop of macroeconomic headwinds and earnings uncertainties, Mansi Patel, Head – Investment Counsellor, Institution, shares her insights on the current market trajectory.
She discusses what’s driving the ongoing correction, whether it presents a buying opportunity, and how sectoral earnings upgrades, rural recovery, and a robust capex cycle could shape equity market trends in the coming months. Edited excerpts:
Which factor, in your view, is weighing more heavily on markets right now—macroeconomic uncertainties or corporate earnings misses?
While company-specific earnings remain critical in the long term, macroeconomic forces are currently shaping the ongoing correction in Indian equities. Global macro headwinds—particularly sticky U.S. inflation and elevated bond yields—are the primary culprits. These factors have triggered a broad-based risk-off sentiment and delayed hopes of U.S. Fed rate cuts, resulting in Foreign Institutional Investors (FIIs) turning net sellers after steady inflows in April–May.
In contrast, Domestic Institutional Investors (DIIs) have offered strong support, reflecting their belief in India’s structural earnings story. Backed by a relatively stable rupee, robust GDP growth, and healthy tax collections, DIIs have continued deploying capital. Notably, the correction has been more pronounced in the mid- and small-cap segments due to lower liquidity and higher volatility.
On the earnings front, Q1 FY26 has been a mixed bag. While global-facing sectors like IT services and select NBFCs have seen some softness, large private banks, auto names, and capex-linked industrials have largely met or exceeded expectations so far. Fundamentally, India Inc. remains on solid ground, even if temporarily overshadowed by global developments.
In your view, does the recent market pullback present a buying opportunity, or could it signal the onset of a deeper correction?
The current correction is in line with historical patterns. Over the past decade, the Nifty 50 has seen nearly one 10%+ correction each year, followed by strong rebounds. Excluding black swan events like COVID-19, these corrections have averaged around 11–12%.
Institutional consensus suggests this is a healthy pause, not the beginning of a bear market. Despite external headwinds, India’s macro setup remains robust—Q4 FY25 GDP growth stood at 7.4%, and rural demand and capex momentum are strengthening.
This pullback offers a strategic opportunity to accumulate high-quality stocks at more attractive valuations, especially in sectors like financials, infrastructure, and consumption. A balanced approach is advisable: core exposure to large caps for stability and selective entry into mid- and small-cap ideas with strong fundamentals.
Which sectors, if any, do you anticipate could see earnings upgrades in the coming quarters?
Yes, several domestic-facing sectors are poised for earnings upgrades in the coming quarters. Capital goods and infrastructure remain front-runners, powered by the government’s ₹11.11 lakh crore capex outlay in FY26. Companies like L&T, Siemens India, and ABB are benefiting from strong order inflows and improved execution efficiency.
In financials, private banks and NBFCs such as ICICI Bank, Bajaj Finance, and SBI are expected to see stable NIMs and strong credit growth. Manufacturing and industrials are gaining from PLI schemes and the China+1 strategy, benefiting players like Bharat Forge and Cummins India.
Auto and auto ancillaries are seeing rural-led demand revival and softer raw material costs, boosting earnings visibility for names like M&M and Bajaj Auto. Healthcare and diagnostics too are on a recovery path, with improving volumes and margin support—players like Apollo Hospitals and Dr. Reddy’s stand to benefit. However, global-facing sectors like IT services and chemicals may remain under pressure due to sluggish overseas demand.
How do you interpret recent corporate commentary regarding rural market recovery and ongoing capital expenditure plans?
Corporate commentary on rural markets has turned distinctly positive. NielsenIQ data shows rural FMCG sales grew 11% in Q4 FY25, far outpacing urban growth of 2.6%. FMCG majors like HUL and Colgate report stronger traction in rural areas, especially in smaller SKUs and hygiene products.
This recovery is underpinned by better monsoons, rising farm incomes, and lower inflation. Simultaneously, the capex outlook is strengthening. Large banks like SBI and ICICI Bank are witnessing increasing demand for project financing across manufacturing, agriculture, and infrastructure.
Energy majors like NTPC and Adani Energy are ramping up investments, while infra players like L&T and KNR Construction report robust pipelines. This dual tailwind of rural consumption and industrial investment bodes well for sustained economic growth.
Are there specific sectors you are accumulating on dips despite near-term volatility?
Yes, we continue to accumulate select sectors that align with India’s structural and policy-led growth trajectory. Infrastructure, capital goods, and power remain top picks due to the strong capex cycle and government spending. Financials—particularly private banks and high-quality NBFCs—offer stability and earnings momentum.
Consumer staples are showing rural-led demand revival, while healthcare is benefiting from volume growth and normalizing input costs. Sectors aligned with digital transformation, such as automation and fintech infrastructure, also present long-term potential. These areas remain core to our buy-on-dips strategy.
Given the current market dynamics, do you believe large-cap stocks are better positioned than mid- and small-cap equities?
In the near term, large caps are better positioned due to their stable earnings, stronger balance sheets, and ability to weather macro volatility. Blue-chip names like HDFC Bank, Infosys, and L&T continue to attract institutional flows, especially during FII pullouts.
However, recent corrections have improved valuations in mid- and small-cap spaces, reviving interest among long-term investors.
With Q1 earnings showing resilience and improved corporate guidance, selective accumulation in quality mid-cap financials, capital goods, and consumption names is underway. A barbell strategy—anchoring portfolios with large-caps while selectively adding high-conviction mid- and small-caps—is the most prudent approach in the current cycle.
Disclaimer: This story is for educational purposes only. 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.
