Current market sell-off nearing end, says Emkay Institutional Equities

Emkay Institutional Equities believes we are nearing the end of the current market selloff. The equity research firm anticipates near-term weakness and heightened volatility for Indian equities in the first quarter of the current calendar year (Q1CY25). However, it expects a gradual consumption recovery in the second half of the year (H2CY25), driven by improvements in employment trends, a revival in unsecured lending, and increased welfare spending. Emkay projects the Nifty to reach 25,000 by December 2025.

 

Emkay anticipates a discretionary consumption recovery within two-to-three quarters, supported by a rebound in IT hiring, better liquidity conditions, and improved retail lending dynamics.

 

 

State-led women-centric welfare schemes and robust winter crop sowing are also expected to bolster consumption trends.

 

"Markets tend to overreact and overextend on both the upside and the downside. The bottoming process is usually volatile, which we are currently witnessing. Our macros are solid, and we now have a more accommodative monetary policy. We estimate that the worst earnings downgrade cycle is behind us. We expect a recovery in the second half of the (next) financial year, triggered by renewed government spending and tax relief-led consumption spending. It is time to buy," said Nirav Sheth, chief executive officer (CEO), Institutional Equities, Emkay Global Financial Services.

 

Emkay expects a rebound in capital expenditure from the next financial year (FY26). After a 31 per cent compounded annual growth rate (CAGR) in capex growth between FY21 and FY24, a slowdown to 10-13 per cent is anticipated, primarily due to election-related spending constraints. However, a rebound in FY26 is expected as policy certainty returns. Green energy continues to be a bright spot despite challenges in capital-heavy sectors.

 

Emkay anticipates foreign portfolio investor (FPI) selling to stabilise post-March as valuations have moderated and earnings forecasts bottom out over the next two-to-three months.

 

A peak in the US Dollar Index (DXY) should ease rupee depreciation concerns and help stem FPI selling. The Reserve Bank of India’s (RBI's) liquidity injection could stimulate domestic equities and benefit the BFSI (banking, financial services, and insurance) sector.

 

Emkay expects the downgrade cycle to conclude, with mid-teen earnings growth in FY26, driven by financial, metal, and energy firms.

 

The brokerage is bullish on discretionary, real estate, and healthcare stocks; neutral on IT, industrials, and energy; and underweight on financials, staples, and materials due to structural concerns and valuation pressures.

 

Its top picks in the largecap space are Lupin, Zomato, Tata Motors, IndusInd Bank, in the midcap are Escorts, Paytm, Metropolis, and in the smallcap space are Stovekraft, and Quess Corp.