Earnings to events: Motilal Oswal says investors must alter their focus

It has been a choppy ride for the Indian stock markets in the last few weeks as they negotiated geopolitical issues between India and Pakistan, Donald Trump’s tariff related tantrums amid corporate earnings for the March 2025 (Q4-FY25) quarter.

 

With most adverse developments now under control, analysts from Motilal Oswal Private Wealth suggest investors switch their attention towards ‘earnings’ from ‘events’.

 

As an investment strategy, they advise investors with lower equity allocations to consider lump-sum investments in Hybrid, Large-Cap, and Flexi Cap funds, and adopt a staggered approach for mid-and-small-caps over the next two–three months, with faster deployment if markets correct meaningfully. 

Here’s why Motilal Oswal Private Wealth recommends investors shift their stance.

No new event in sight

Motilal Oswal Private Wealth believes that major events that could have a significant impact on the Indian markets are largely priced in by the markets at the current levels. The easing of monetary policy by the Reserve Bank of India (RBI) and consumption boost provided by the government in the Union Budget are among such events, they said in a recent note. Further, no significant events are scheduled for now except for unforeseen situations.

 

RBI is expected to cut policy rates by as much 125 basis points (bps) in the current fiscal year 2025-26 (FY26), according to an SBI Research report.

Improving corporate earnings

India Inc's aggregated net profit—adjusted for exceptional items—of 1,555 companies (excluding listed subsidiaries), in Q4-FY25 rose 6.6 per cent year-on-year (Y-o-Y), well above most estimates, analysts at Motilal Oswal Wealth Management said. In their earnings previews, various brokerages had projected Y-o-Y growth of -5 per cent to 1 per cent for companies in their coverage universe.

 

Over the next two years, analysts at Motilal Oswal Wealth Management  expect a 14 per cent compound annual growth rate (CAGR) in Nifty earnings per share (EPS) as early Q4-FY25 results suggest improving corporate performance.

How are valuations looking?

The firm notes that large-cap valuations (as represented by the Nifty50) have shifted from "attractive" to "fair" following a strong rally in March and April, during which benchmark indices gained nearly 12 per cent.

 

While the valuations are near its long term average (LTA), it is 15 per cent below its September 2024 high. Nifty50 was trading at a 12-month forward price-to-earnings (P/E) ratio of 20.7x. This is very close to its long-period average of 20.3x, representing only a 1 per cent premium.

Mid-and-small-caps at premium

Among the broader market indices, mid-and-small-caps continue to trade at a premium relative to long-term averages and selective opportunities are beginning to emerge in these segments.

 

As of the end of April 2025, the Nifty Midcap100 is trading at a 20 per cent premium to its LTA based on the 12-month forward P/E ratio. Its current 12-month forward P/E is 27.1x, compared to its average of 22.6x. The Nifty Smallcap-100 is trading at an even higher premium, at 47 per cent above its LTA. Its current 12-month forward P/E is 23.6x, while its average is 16.1x.