Despite muted foreign flows and geopolitical uncertainties, corporate earnings have shown resilience, pushing the Nifty into a 'very attractive' zone, according to Sanjay Bembalkar of Union Asset Management Company. Bembalkar suggests that future market returns will likely stem from earnings delivery rather than valuation expansion.
Corporate earnings in Q1FY27 have been encouraging, with resilience in sales and profitability despite global volatility and high raw material costs. Management commentary remains positive, particularly regarding domestic demand and export opportunities. The domestic policy environment, including GST rationalisation, is expected to support consumption.
Private sector capex announcements have been subdued, but key manufacturing sectors are operating at peak utilisation. Analysis from ICICI Securities shows that Rs.12.6 lakh crore was spent on capex in FY26, indicating a substantial commitment. The current capex cycle focuses on export-oriented manufacturing, technology spending, and energy independence.
“The time correction and earnings uptick have pushed the Nifty into the 'very attractive' zone from a fair-value perspective.”
Sanjay Bembalkar, Head of Equity at Union Asset Management Company
Foreign Institutional Investors (FIIs) have shown positive inflows in August, though geopolitical uncertainties remain a concern. Currency stability and policy measures supporting foreign participation in Indian debt markets are positive signs for future flows.
Valuation premiums have moderated following recent corrections, bringing India's valuation multiples closer to their 10-year average. While India may continue to trade at a premium to some emerging markets, consistent earnings growth and quality of businesses are crucial.
Background
The Indian market has been experiencing a phase of time correction, with corporate earnings showing resilience despite global economic uncertainties. This has led to a more attractive valuation for the Nifty, providing a favorable risk-reward scenario for long-term investors.
Looking ahead, investors should be cautious of sectors where valuations have outpaced earnings visibility. Financials, healthcare, capital goods, and industrials offer reasonable valuations. New IPOs present exciting opportunities, but investors should assess management and valuations carefully.
