Expert view on markets: Unmesh Sharma, the head of institutional equities at HDFC Securities, says the Indian stock market could stay rangebound and the Nifty may give flat to single-digit returns in FY26. He believes any material earnings missed this financial year would be detrimental to the markets. In an interview with Mint, Sharma talks about market valuation, recent government reforms, and US Fed rate cut expectations. Here are edited excerpts of the interview:
What is your short-term outlook for the market? Where do you see the Nifty by the end of the year 2025?
We believe this is a range-bound market. There is no major downside due to strong twin balance sheets and double-digit corporate earnings growth.
Additionally, there is no major valuation upside either, as Nifty is trading at +1 standard deviation above mean valuations (nearly 22.5 times FY26E, while the 10-year average is 20.4 times).
Additionally, there is an ongoing uncertainty around tariffs and geopolitics, which will limit any possible re-rating.
In the absence of any valuation upside, Nifty returns are expected to be majorly earnings growth driven.
As Nifty is estimated to deliver nearly 9 per cent earnings growth in FY26, so in that context we expect flat to single-digit upside for Nifty in the current financial year.
How do you see recent developments like GST reforms, tax rebates, and RBI’s rate cuts? Can they stimulate corporate earnings, drive investor confidence?
Supportive fiscal policies such as GST rationalisation and tax rebates are concrete efforts taken by the government to boost ailing consumption in the country. With timely implementation, it has the potential to uplift consumption decisively.
These changes are estimated to stimulate consumption in sectors like automobiles, consumer durables and retail.
Further, recent monetary policy changes covering CRR and repo cuts are expected to reduce corporate borrowing costs, revive various capex projects, and reduce the interest burden on existing loans.
These fiscal and monetary policy steps are opportune in the current context, when the country is facing an uncertain tariff environment and a slowdown in urban consumption.
Collectively, they have the potential to drive earnings growth and boost investor confidence.
What can bring FPIs back to Indian markets?
In the last few months, geopolitically, India has shifted (almost suddenly) from being in a geopolitical sweet spot to a tricky space.
Resolution of these matters will reduce volatility and improve visibility on earnings, which will, hence, lead to FPI buying. Additionally, as India is still a relatively expensive market compared to other emerging markets (EMs), time correction of valuations would work in favour of Indian markets.
Furthermore, even a healthy low double-digit corporate earnings growth would make India look much attractive than peer countries and would be instrumental in bringing FPIs back to the Indian markets.
When do you expect earnings to revive? Which sectors may benefit from earnings revival?
Aggregate earnings of HSIE (HDFC Securities) coverage universe grew by 10 per cent year-on-year (YoY) in Q1FY26, improving from 8 per cent in Q4FY25.
We believe the growth outlook at the aggregate level will improve from here, as earnings of heavy-weight sectors like BFSI, IT, and consumption have almost bottomed out.
GST cuts, benign inflation, declining interest rates, and fiscal support in the form of income tax relief are expected to drive consumption revival.
Further, deposit repricing carried out by banks will gradually pull back their NIMs.
It will drive earnings growth in the remaining quarters of FY26, aided by an improvement in credit growth.
Overall, we estimate nearly 11 per cent earnings growth for the HSIE coverage universe in FY26, led by BFSI and consumption.
What are the key risks for the market? Do you see any structural weakness we should be cautious about?
As mentioned earlier, Nifty is currently trading at one standard deviation above the historical mean levels.
Hence, any material earnings miss in this financial year would be detrimental to the markets.
Furthermore, any more repo cuts would delay the NIM (net interest margin) bounce back for the banks, impacting earnings. Additionally, the market is currently discounting below assumptions:
(i) Expectations are that earnings will revive in the second half of FY26.
(ii) Mid-teens earnings growth for FY27.
(iii) A high probability that the tariff situation (50 per cent tariffs) will improve and possibly even better than the tariff imposed in phase 1 (25 per cent tariffs).
Disappointment on these fronts would have an adverse impact on the market.
Do you expect a rate cut by the Fed in September? How could it impact Indian stock market sentiment?
We believe there is a very high probability of a rate cut in the US in September. This was also obvious from the recent speech by Gov Powell at Jackson Hole.
Needless to say, this is generally a positive stimulant for rate sensitives and risk assets like EMs.
Hence, India would also get the advantage of this event. However, we do not think the relationship between the US Fed rate cut and the Indian stock market will be as simple.
Around September ’25, the markets are more likely to be driven by the tariff and geopolitical scenario apart from the delivery of corporate earnings, consumption trends post-monsoon, festive season, GST rationalisation, and continuation of government spending.
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Disclaimer: This story is for educational purposes only. 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.
