New Delhi, Sep 11: Indian equities could enter a more favourable phase in the second half of the financial year as an improvement in corporate earnings is expected to provide stronger support to market valuations, according to a recent report.
The outlook comes at a time when Indian stocks are facing significant short-term pressure from rising crude oil prices, geopolitical tensions and concerns over global interest rates. The Nifty and Sensex fell to three-month lows on Friday, with the broader market also witnessing selling pressure.
Despite the near-term volatility, expectations of a recovery in corporate profits could improve investor confidence. A sustained pickup in earnings would give markets a stronger fundamental base and could encourage investors to look beyond temporary global disruptions.
The earnings recovery is expected to become particularly important in the second half, when improving business activity, domestic demand and investment could support revenue and profit growth across several sectors.
The market is also seeing a broader shift in growth opportunities. Recent research points to increasing potential across areas such as manufacturing, infrastructure, power, financial services, consumption, renewable energy, semiconductors, artificial intelligence and digital infrastructure.
For companies, stronger earnings can create room for fresh investment, capacity expansion and hiring. It can also improve the financial position of businesses and support greater spending across supply chains, creating opportunities for smaller companies and suppliers.
Large-cap stocks could remain an important part of this recovery, particularly where valuations have become more reasonable and earnings visibility is improving. At the same time, investors are increasingly looking for the next set of growth opportunities emerging from India's expanding domestic economy.
The broader investment environment is also showing some encouraging signs. Recent market analysis points to improving alignment between macroeconomic conditions, corporate earnings, credit growth and investor sentiment, which could support a gradual recovery in equities if the trend continues.
However, the road to a sustained market recovery is unlikely to be smooth. High crude prices remain a key risk for India because they can increase inflation, put pressure on the rupee and raise costs for businesses. The rupee was under pressure this week as Brent crude remained above $100 a barrel and global bond yields climbed.
This makes the expected earnings recovery especially important. If companies are able to deliver stronger profits despite higher input and financing costs, investor confidence could improve and valuations may gradually receive greater support.
A re-rating of Indian equities would therefore depend not only on market sentiment but also on the ability of companies to translate India's underlying economic growth into sustained earnings.
For investors, the coming quarters are likely to remain focused on corporate results, domestic demand, capital expenditure, interest rates, crude oil prices and global geopolitical developments.
If earnings growth strengthens as expected in the second half, Indian equities could move from a period of valuation and sentiment pressure towards a phase where stronger business performance once again becomes the main driver of the market.
