As investors prepare to welcome Samvat 2083 this Diwali, the Indian stock market faces a crucial test: can resilient domestic growth and corporate earnings overcome persistent geopolitical uncertainty, elevated crude oil prices and sustained foreign investor selling?
In an interview with LiveMint, Dheeraj Gaur, Chief Investment Strategy Officer at Choice Wealth, shared his outlook for the Indian equity market over the next 6–12 months. He expects the Nifty to reach 26,500–27,000 over the next 12 months, but cautioned that a prolonged oil shock or further geopolitical escalation could trigger another bout of volatility.
Edited Excerpts –
Q1. What is your outlook for the Indian stock market over the next 6–12 months?
The market is caught between strong domestic growth and earnings and external risks from crude oil and geopolitical tensions. India’s fundamentals remain resilient, with Q1 FY27 GDP growth at 7.8% and the RBI projecting 7.1% growth for the year. However, the US–Iran conflict has kept Brent crude above $100 a barrel, adding to inflationary pressures.
Valuations are undemanding, with the Nifty trading near 19 times earnings, below its long-term average, while earnings growth remains intact. If crude prices cool and peace talks advance, the market could stage a meaningful recovery. However, further escalation could keep oil prices elevated, tighten policy, disrupt supply chains and increase inflation.
Q2. What are your Nifty and Sensex targets for the next 12 months?
Our 12-month base case puts the Nifty at 26,500–27,000 and the Sensex at 86,000–88,000 (approximately 3.25 times the Nifty). This assumes corporate earnings sustain low-to-mid-teens growth and the market sees a modest re-rating as crude oil and geopolitical concerns ease. A sharper, sustained oil shock remains the key downside risk and could push the Nifty towards 21,000–21,500.
Q3. What are the biggest risks facing the Indian stock market, and what could trigger a sharp correction?
The biggest risks are largely external: crude oil, inflation and interest rates, foreign flows and the dollar. A renewed US–Iran escalation pushing Brent sustainably above $110–120 a barrel could worsen imported inflation and India’s current account position.
CPI inflation rose to 5.5% in September, while the RBI has raised the policy rate to 5.50%. Consensus expectations point to two more rate hikes. Sustained FII selling, a stronger dollar, uncertainty around the US midterm elections and an unwinding of the global AI and technology trade could add to the pressure. A sharp correction would most likely result from an oil-and-inflation shock coinciding with a global risk-off move.
Q4. Are Indian equities overvalued at current levels, or do valuations still leave room for further upside?
At around 19 times earnings against a long-term average of 22–23 times, the Nifty has de-rated and is already pricing in macroeconomic concerns. It trades 12–15% below its five- and 10-year average valuations, while its price-to-book ratio is also below trend.
Much of the external uncertainty is reflected in prices, while India’s growth story, supported by strong GDP, healthy corporate balance sheets and the financialisation of savings, remains intact. This leaves room for upside, particularly in large-caps, once crude oil and geopolitical concerns ease. Some broader-market pockets remain expensive, but the headline index offers a reasonable entry point for long-term investors.
Q5. Which sectors are best positioned to outperform over the next 6–12 months, and which should investors avoid?
We are constructive on three themes: capital markets and financial services, including broking firms, exchanges, asset and wealth managers, which could benefit from the financialisation of savings; the oil and energy value chain, which is well-positioned through the current crude cycle; and hospitals and healthcare, which offer long-term, demand-led growth and relative insulation from global shocks.
We would be selective in capital-intensive and rate-sensitive businesses exposed to high input costs and higher-for-longer interest rates, particularly where valuations already factor in aggressive growth. We prefer quality, cash-generating businesses with earnings visibility and strong balance sheets over expensive, highly leveraged companies.
Q6. What is your outlook for large-cap, mid-cap and small-cap stocks? Where is the best risk-reward?
We see the best risk-reward in large-caps. At around 19 times earnings, the Nifty is below its long-term average, offering access to high-quality, liquid companies at a discount and with relatively less downside if volatility returns.
Mid- and small-caps have shown stronger earnings momentum this quarter but generally trade at richer multiples and are more sensitive to higher-for-longer interest rates, which raise the cost of capital expenditure and growth. We prefer large-caps for valuation comfort and stability, alongside selective mid- and small-cap exposure where earnings justify valuations. A large-cap-tilted core portfolio with disciplined, earnings-backed exposure to smaller companies is sensible.
Q7. Can corporate earnings growth sustain current valuations, or are earnings downgrades a major risk?
Earnings are holding up, and the risk of significant downgrades is limited, provided geopolitical conditions do not deteriorate sharply. September-quarter results have been broad-based, with around 58% of the more than 1,270 companies reporting positive earnings. The proportion among large-caps is approximately 68%. Operating margins have also reached a multi-quarter high as input costs stabilised.
Q8. What is your outlook on FII flows, and can DIIs continue to offset foreign selling?
FIIs have remained net sellers for a record stretch, with outflows of around $59 billion over the 24 months to September and almost ₹3 lakh crore in 2026.
DIIs, supported by SIPs and mutual fund inflows, have absorbed substantial foreign selling and cushioned the downside. However, they cannot fully substitute for foreign flows. Their buying primarily limits downside, while foreign investors remain the marginal, trend-setting buyers needed for a strong rally. With valuations below the 10-year median price-to-earnings multiple, Indian equities could attract FIIs after two years of selling.
Q9. Should investors deploy fresh money now, increase SIPs, or wait for a correction?
Long-term investors should invest and use market weakness to their advantage. Past market shocks, including the 2008 financial crisis, taper tantrum, Covid-19 and the Russia–Ukraine war, felt dangerous at the time, but investors who stayed invested or added to their portfolios were rewarded.
The current environment combines genuine uncertainty with below-average valuations, a Nifty trading near 19 times earnings, strong GDP growth and resilient corporate earnings. There is no structural flaw in India’s growth story. Investors should deploy money gradually, continue and ideally increase SIPs and STPs, and retain some cash for sharper dips. Trying to time the exact market bottom is futile; disciplined investing through market cycles helps build long-term wealth.
Q10. How should investors allocate across equities, debt and gold in the current environment?
This is an environment for multi-asset investing, with equities, debt and gold serving different portfolio needs. In equities, investors should maintain a healthy allocation with a large-cap tilt, as valuations have corrected and the long-term growth story remains intact.
In debt, the repo rate is 5.50%, and the possibility of another hike could make yields more attractive. When the cycle turns towards rate cuts, today’s higher-yielding quality NCDs could deliver price gains alongside income.
Gold and silver have corrected sharply from their January 2026 highs but remain hedges against geopolitical shocks, inflation and rupee weakness. A diversified portfolio with an equity-heavy allocation, meaningful debt exposure and around 10–15% in precious metals can balance growth and protection. The exact allocation should depend on the investor’s risk profile and investment horizon.
Disclaimer: 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.
