Indian stock market is witnessing a stellar rally from its recent lows, with the benchmark indices, Sensex and Nifty 50, extending gains for the seventh consecutive session on Tuesday. While the market uncertainties over the short-term prevail, the broader macroeconomic fundamentals remain strong for the medium to long term.
According to brokerage firm Anand Rathi’s latest stock market outlook, corporate earnings, domestic equity inflows, and attractive valuations create opportunities for strategic stock picking. The Nifty 50, currently trading at 17.8x one-year forward earnings, is at a discount of 5.4% to its five-year median and 12.9% to its ten-year median.
While short-term volatility persists due to geopolitical concerns, the overall outlook for FY26 suggests steady earnings growth, particularly in infrastructure, metals, consumer durables, and the BFSI sector. Conversely, challenges persist in the auto, IT, and small consumer goods sectors, making selective investment crucial.
Top Growth Sectors for FY26
Strong Growth Sectors
- Cement: Demand is expected to grow by 7% - 8% year-over-year (YoY), with better pricing and new capacity additions driving ~30% EBITDA growth.
- Wires & Cables: Rising capital expenditure and export demand will fuel sector expansion.
- Big-ticket Consumer Durables: ACs and mobile manufacturing will benefit from a hot summer and increased production.
- FMCG: Revenue growth is expected to improve to 9% (vs. 5% in FY25), driven by government spending, lower input costs, and a favorable base.
- Jewellery: Organized players are expected to gain market share as consumer preferences shift.
Moderate Growth Sectors
- Agrochemicals: A recovery is anticipated as inventory levels normalize and raw material prices stabilize.
- BFSI: Credit growth is projected at 13-14%, supported by liquidity easing and gradual rate cuts. Large banks and NBFCs remain favorable.
- Hospitals & Healthcare: The sector is set to benefit from rising medical tourism and increased insurance coverage.
- Infrastructure: Government spending on roads, metro projects, and PPP-driven developments is expected to continue.
- Metals & Mining: Higher commodity prices and capacity expansion will support growth, particularly in ferrous metals.
Weak or Low-Growth Sectors
- Auto: Demand uncertainty and high input costs could lead to earnings downgrades despite price adjustments.
- Small-ticket Consumer Durables: While cooling products like fans and stabilizers may see higher demand, kitchen appliances and lighting face muted growth.
- IT: Spending is expected to remain subdued in the first half of 2025, with a possible recovery in the latter half benefiting ER&D and BFSI-focused IT firms.
- Retail Apparel: Branded players continue expanding stores, but discretionary spending trends remain uncertain.
Stock Market Strategy: Valuations and Stock Picks
Anand Rathi continues to favor largecap and midcap stocks over smallcaps, citing greater resilience and stability in these segments. While short-term volatility may persist, particularly amid global geopolitical uncertainties, long-term investors may find significant value in fundamentally strong stocks.
Since September 2024, sector valuations have de-rated at a faster pace than earnings downgrades, resulting in attractive buying opportunities. Some stocks are now trading at significant discounts to their historical valuations, offering a margin of safety for investors, according to Anand Rathi.
Sectors such as automobile, apparel retail, and consumer staples may underperform in the near term. However, jewellery retail, value retail, hospitality, entertainment, large-ticket consumer durables, and alcobev (alcoholic beverages) are expected to outperform.
The infrastructure sector remains a key focus, with continued government spending driving strong momentum. In global markets, metals & mining appear promising due to shifting industry dynamics, while IT faces headwinds due to US policy uncertainty, said the brokerage firm.
Top Stock Picks
The large-cap stock picks by Anand Rathi includes Godrej Consumer Products, Hindalco Industries, ICICI Bank, LTIMindtree, and Max Healthcare Institute.
The top picks among midcaps are Astral, Escorts Kubota, JK Cement, L&T Finance and United Breweries.
The small-cap stock picks are Arvind Fashions, Karur Vysya Bank, KNR Construction, Sharda Cropchem and PG Electroplast.
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.