Nifty’s performance over the last year has been disappointing. The index has delivered a negative return of 2% since last year to Independence Day 2026, due to geopolitical uncertainties, foreign capital outflow, and earnings growth-valuation mismatch.
Index components ITC, HDFC Life Insurance, HDFC Bank, Wipro, Jio Financial, and TCS have lost 22-32% since last year. On the other hand, Shriram Finance, Hindalco Industries, Titan Company, Bajaj Auto, and Eicher Motors have jumped 40-80% in the same period. As many as 17 stocks have jumped over 10% in the Nifty 50 index since last Independence Day.
A plethora of headwinds weigh on sentiment
Experts highlight that the Nifty’s performance over the last one year reflects a combination of earnings moderation, valuation compression and foreign investor outflows rather than any structural deterioration in India’s growth outlook.
“The primary factor has been a slowdown in earnings momentum. After a strong post-COVID earnings recovery, corporate profit growth moderated as margin expansion normalised across sectors. Valuation concerns have also weighed on market performance. Indian equities continue to trade at a premium to emerging market peers. Investors have been looking for a broader earnings recovery before assigning higher valuation multiples,” said Vinit Bolinjkar, the head of research at Ventura.
Q1 earnings came in slightly better than expected, but the recovery remains selective across sectors.
The Nifty’s forward P/E has moderated from peak levels but remains above historical averages, making earnings delivery the key driver for further market re-rating.
Foreign portfolio flows have been another headwind.
As Bolinjkar pointed out, FY26 saw significant FPI selling, with foreign investors withdrawing nearly $19.7 billion from Indian equities, which impacted large-cap performance, particularly in financials and IT. However, domestic liquidity has provided strong support, with SIP inflows and domestic institutional participation cushioning market volatility.
Additionally, global macro factors, including crude oil volatility, geopolitical risks, and US interest rate uncertainty, impacted investor sentiment.
Is it the right time to increase exposure to Indian equities?
While market sentiment is improving as India’s growth-inflation dynamics remain favourable, geopolitical risks remain a key risk that cannot be overlooked.
Experts expect the Nifty 50 to reach near 27,000 by the end of the financial year 2027, but it will depend on earnings growth and oil price trajectory. A prolonged US-Iran conflict can delay earnings recovery and market rally.
An additional risk is rising yields in Japan and the US, which can hit emerging market equities by accelerating foreign capital outflow.
Karan Aggarwal, Co-Founder and CIO, Ametra PMS, said that the index could reach 27,000 by March 2027 in a best-case scenario—if current valuations sustain and Nifty companies deliver approximately 12% EPS growth. He, however, added that his downside scenario is materially sharper.
“If the yen carry trade begins to unwind, there is a possibility of an approximately 20% drawdown in Indian equities,” said Aggarwal.
Most experts appear constructive on Indian equities over the medium term, anticipating returns over the next 12 months to be driven primarily by earnings growth rather than valuation expansion.
They recommend increasing exposure to equities, while being selective on sectors and stocks.
“The key catalyst for markets will be a revival in corporate earnings. Earnings growth is expected to improve as consumption demand stabilises, input cost pressures moderate and operating leverage benefits accrue across sectors. Recent earnings trends indicate gradual improvement, with brokerages highlighting stabilising profits and improving earnings visibility,” said Bolinjkar.
Domestic growth remains a structural support. India continues to benefit from strong domestic liquidity, government-led infrastructure spending, and a gradual recovery in private-sector capex.
As Bolinjkar highlighted, credit growth remains healthy, with banking system loan growth reported in the high-teens range, supporting financial sector profitability and broader economic activity.
Foreign investor participation will remain an important market driver.
Bolinjkar believes a combination of easing global interest rates, stable currency and improving earnings visibility could lead to a recovery in foreign flows.
However, elevated crude prices, global growth slowdown, currency volatility and further valuation compression remain key risks. Therefore, experts expect the market to remain stock-specific, favouring earnings visibility over broad market beta.
From a sectoral perspective, Bolinjkar prefers businesses aligned with India’s structural themes — manufacturing, infrastructure, power, defence, financial services, and selective consumption.
“Within these sectors, companies with strong balance sheets, high return ratios, pricing power and sustainable cash flows are likely to outperform,” said Bolinjkar.
“Over the next one year, we are selectively constructive rather than uniformly bullish. The next leg of the market will have to be driven by earnings, not simply by multiple expansion. If corporate profit growth broadens, foreign flows stabilise, and crude remains manageable, the setup could become more supportive,” said Harshal Dasani, Business Head at INVAsset PMS.
Dasani expects leadership to remain rotational and increasingly linked to earnings visibility, balance-sheet strength and cash-flow delivery.
“Financials, power, energy, metals and capital-market-linked businesses appear better placed where fundamentals justify valuations. A sharp rise in crude or a renewed deterioration in global liquidity would challenge this view,” said Dasani.
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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 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.
