Pankaj Pandey of ICICI Securities expects the Indian stock market to deliver healthy double-digit returns over the next 12 months due to potential double-digit earnings growth, GST rate cut-led consumption growth, an India-US trade deal and a lower interest rate scenario. Pandey, however, warns that global risks remain a key headwind. His 12-month target for Nifty 50 is 29,500, while his corresponding target for Sensex is 98,500. Among the sectors, he is positive on BFSI, IT, capital goods, and real estate, while Bank of Baroda and KPIT Tech are among his top picks for the long term. Here are edited excerpts of his views:
Outlook for the market for 2026. Key headwinds and tailwinds
Indian macros are on a solid foundation be it the inflation scenario (averaging at 2.1%), low interest rates (125 bps cut already done), strong government spending (60% of the capex target met by Oct 25), rationalisation of income tax (no tax till ₹ 12 lakh of income), GST rates rationalisation (abolishing 12% and 28% tax rates), which will lead to consumption boost and will have a positive rub off on investment cycle in the medium term.
India offers a perfect trilogy of lower inflation, lower bond yields and improving growth, supporting a positive equity outlook going forward. We believe Q2FY26 is the turning point in terms of recovery in the corporate earnings cycle, wherein the listed universe delivered a 12% YoY growth in earnings, and broader markets (excluding Nifty companies) delivered 21% YoY growth, which will be further supported by a strong H2FY26.
Going ahead, we expect the Nifty EPS to grow at a CAGR of 15% over FY26-28E, led by Telecom, BFSI and Capital goods space with a similar two-year EPS CAGR for midcaps and small caps pegged at 19-21%.
With the rest of asset classes, i.e. global equities, precious metals delivering returns in the past, the stage is all set for domestic equities to outperform peers.
While foreign portfolio investors at times have been net sellers in the secondary equity market, overall foreign capital flows into India continue to be strong through private channels and the primary market.
Headwinds: Uncertain global trade amid ongoing tariff issues, geopolitical risks.
Tailwinds: Resumption of double-digit earnings growth, GST rate cut led consumption growth, an India-US trade deal, and a lower interest rate scenario.
12-month Nifty target?
We expect Nifty earnings to grow 15% CAGR over FY26-28E. Introducing FY28E and rolling over our valuations, we now value Nifty at 29,500, i.e. 21 times PE on FY28E.
Our corresponding target for Sensex is pegged at 98,500. We expect markets to deliver healthy double-digit returns over the next 12 months. On a two-year forward basis, Nifty trades at a P/E ratio of 18.6 times, i.e. within 1 standard deviation of the 10-year average.
Sectors that can generate alpha next year
With Sector rotation as the core theme, we expect BFSI, capital goods, IT and real estate to generate alpha next year. These are the sectors at the top of our pegging list.
BFSI: Revival of credit growth, strong asset quality, valuations at historical mean – strong risk reward in PSU banking space.
IT: Time to relook post-healthy corrections as valuations have hit a floor and CY26E will see growth bouncing back.
Capital goods: Momentum in new projects/tenders points to strong ordering activity in CY26E.
Real estate: Huge runway of growth as the sector can multiply by three times over the next five years.
We also expect small-caps to make a comeback next year. Interestingly, analysing the data for the last two decades, it has been observed that there exists a low probability (14%) of small caps correcting in two consecutive years.
Therefore, with the small-cap index down nearly 10% in CY25, odds (86% probability) are in favour of small caps resuming the up move and delivering healthy double-digit returns in CY26E.
Nifty Smallcap index trades at 19.3 times P/E on CY27E versus CY25-27E earnings CAGR of 20.5%; i.e. attractive (less than 1 PEG) versus its peers (Nifty 50 and Nifty Midcap).
Stocks to buy for the long term
Bank of Baroda | Target price: ₹340
Bank of Baroda, the third-largest public sector bank with a global loan book of ~ ₹12.3 lakh crore, is positioned for a recovery-led growth cycle.
After a relatively slower 1HFY26, credit momentum is expected to accelerate in H2FY26, fueled by strong corporate sanctions ( ₹40,000 crore) and robust retail/ MSME traction, enabling 11–12% growth over FY26-28E.
Despite pressure, margins are guided at 2.85–3% for FY26E and improve in FY27E, aided by calibrated repricing.
Asset quality remains a key strength with GNPA/NNPA at a multi-year low of 2.16%/0.57%. Steady recoveries and benign credit costs ensure sustained earnings visibility.
NRB Bearings | Target Price: ₹350
NRB Bearings is looking to reinvent its growth strategy to gain market share in underpenetrated segments (like electric and hybrid vehicles, industrial mobility and after-market).
It has announced a capex plan of ~ ₹ 500 crore, of which ₹ 200 crore will be invested over the next two years for expanding and upgrading its manufacturing capabilities and R&D.
This will be primarily towards enhancing capacities and is expected to be completed by Q4FY27, and will increase the company’s total production capacity by 15-25% across various product groups and provide longer-term growth visibility.
Valuations at 17 times P/E on FY27E earnings are at a significant discount to its peers.
KPIT Tech | Target price: ₹1,475
KPIT is a pure-play automotive ER&D services company, focused on helping global OEMs and Tier 1 suppliers accelerate their transition toward SDVs.
It has delivered ROE of 25%+ and ROCE of 30%+ over the last two FYs. It’s strategic transition from a services to end-to-end solutions company, along with increased fixed-price contracts, enhances delivery efficiency and profitability potential as management aims to maintain nearly21% EBITDA margins.
Moreover, M&A led to capability expansion and entry into micromobility and industrial verticals, strengthening long-term capabilities.
We believe that strengthening demand from Europe, India and China, with a robust pipeline, underpins revenue recovery and visibility into FY27.
Phoenix Mills | Target price: ₹2,210
Phoenix Mills is a leading owner, operator and developer of retail-led developments pan-India, having an operational retail area of ~11.5 msf, spread across 12 operational malls and plans to reach 18 msf across 17 malls by 2030. It has 5msf/588 keys operational commercial office/hotels and plans to reach 9msf/2188 keys by 2030.
It is a proxy on the domestic consumption story riding on the premiumization trend. It can potentially generate over ₹ 8,500 crore operating cash flows over FY26-FY30 (5x of ₹ 1700+ crore in FY25).
Additionally, lower leverage (Net debt to EBITDA stood at less than 1 time as on H1FY26), which can aid in future expansions.
Dalmia Bharat | Target price: ₹2,650
Dalmia Bharat is India’s fourth-largest cement manufacturer with a cement capacity of 49.5 mtpa as of FY25 end.
The company has almost doubled its capacity in the last five years, resulting in a nearly 9% volume CAGR.
It is further scaling its capacity to 61.5 mtpa by FY28E (through 12 mtpa expansion in process) and targets 110–130 mtpa by FY31E.
With a healthy demand outlook, volume growth is expected to remain healthy at nearly 8% CAGR over FY25–28E.
Management aims to boost profitability through premium products, operational efficiencies, and cost reduction of ₹150–200/ton, supporting EBITDA/ton expansion to ₹1,362 by FY28E from ₹819 in FY25.
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Disclaimer: This story is for educational purposes only. 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.
