Happy all-time high anniversary, Nifty; Que sera sera!

It has been a year since India's benchmark indices last closed at record highs, and while markets have faced turbulence since then, analysts remain constructive on the road ahead for the markets from a long-term perspective.

 

In the short-term, however, there are a number of unknowns, such as decision on US tariffs, clarity on H-1B visa issue, performance of India Inc in the next few quarters amid high valuations, which analysts believe is difficult to predict right now and could keep the markets guessing on the path to take.

 

The key indices, Nifty and Sensex, had closed at record levels on September 26, 2024, while the broader Mid and Small-cap gauges hit a record on September 24 last year.

 

   

Since then, the benchmark indices have fallen as much as 16 per cent, while the broader market has dropped over 20 per cent from their highs. After exactly a year, Nifty and Sensex are down about 4.5 per cent from their peak levels, data shows.

 

During this period, domestic institutional investors have pumped in ₹7.46 trillion, according to provisional data, largely buoyed by inflows via mutual funds. Since October last year, fund houses have seen over ₹2.9 trillion of inflows just via the systematic investment plans (SIPs), as per reports. 

 

The decline in the domestic stock market comes mainly on account of outflows by foreign portfolio investors, who have sold ₹3.94 trillion in this period. The risk-off sentiment results from various geopolitical concerns, high valuation, modest India Inc earnings, and the US President's tariff jitters being the latest. 

What's in store going ahead?

Ajay Bodke, independent market analyst, noted that the recent Goods and Services Tax (GST) rate cuts and a normal monsoon are expected to support consumption demand across rural and urban areas. Strong harvest prospects during the upcoming festive season could further stabilise inflation, potentially paving the way for a marginal 25-basis-point rate cut by the Reserve Bank of India (RBI).

 

"The bottom clearly seems to be in place. Do I see a significant downside from here? I do not. The upside will depend on how strongly earnings come back," Bodke said. Valuations, which had earlier run ahead of fundamentals, are now back to reasonable levels as earnings have inched up, he added.

 

Meanwhile, analysts at Motilal Oswal said that equities may be poised for a turnaround as the intensity of earnings downgrades slows. After four straight quarters of significant downward revisions, the cut in earnings forecasts during the June quarter (Q1FY26) was the smallest in a year, it noted.

 

Global brokerage firm, HSBC, led by Herald van der Linde, upgraded Indian stock markets to ‘overweight’ rating from ‘neutral’ earlier, earlier this week. They have kept the Sensex target unchanged at 85,130 levels for 2025-end, but see the Sensex at 94,000 levels by end-2026.