Indian equities out of re-rating potential; Emkay decodes what's next

Market outlook: According to Emkay Global Financial, surge in Nifty has pushed the valuations out of the 'attractive' territory and has left little room for further re-rating

Market outlook: In the first half of calendar year 2025, Indian benchmark indices have rallied up to 10 per cent. This surge, according to Emkay Global Financial, has pushed the valuations out of the ‘attractive’ territory and has left little room for further re-rating. 

 

Most indices (Nifty50/BSE200/Small-and-midcap) are trading in a range between their long-term average (LTA) and above plus one standard deviation (+1sd), with the BSE200 and Midcap indices trading at the highest premium. 

 

Drilling deeper, Emkay notes that 34 per cent of its tracked universe—comprising over 500 companies covered by at least five analysts—are currently trading at +1sd above their long-term mean. This is up from 11 per cent in March 2025, though still below the September 2024 peak of 44 per cent. 

 

In this context, analysts at Emkay Global Financial has taken a 'cautious' stance on Indian equities in the near term and anticipates a period of consolidation over the next one to two quarters. However, any sharp correction, according to the brokerage, may offer a favourable entry opportunity.

 

Market outlook 

Stable earnings outlook, but Q1 to remain muted

While the overall earnings trajectory appears stable, Q1FY26 is expected to be soft, with most of the weakness already priced in. The Nifty FY26 earnings per share (EPS) saw only a marginal downgrade of 84 basis points (bps) over the past month. Key consensus downgrades were seen in Tata Motors, Bajaj Finance and Shriram Finance, while upgrades were scarce. In the BSE200 category, the EPS was cut by 68 bps between May and June with Adani Green/Tata Motors/REC seeing the sharpest consensus cuts.

 

Overall, Emkay Financial believes, the share of companies seeing upward revisions of over 10 per cent in FY26 EPS has dropped to 23 per cent—down from 27 per cent in the previous quarter. Analysts expect growth sentiment to recover in H2FY26, with potential for earnings upgrades later in the year.

 

Global flows to support, but promoter selling warrants caution

In June 2025, the fund flows have been robust with strong inflows from foreign portfolio investors (FPIs) and mutual funds (MFs), as markets rallied from early April. Systematic investment plan (SIP) flows have been heavy into large, Small-and-midcap, and flexicap funds, shifting from thematics/focused funds. 

 

While domestic flows have a strong tailwind from falling rates as yields on fixed-income investments fall further, global flows are also expected to be strong with continued pressure and a soft landing in the US and Western economies. 

 

While primary market activity deepens breadth and keeps valuations from overheating, elevated promoter offloading will be closely tracked in the coming weeks.

 

Primary market activity has picked up– initial public offers (IPOs) have raised ₹19,900 crore (0.06 per cent of equity market cap) with a strong pipeline. Promoter-selling has also accelerated and surged 336 per cent month-on-month (M-o-M).