Indian Markets Eye Second Half Upswing Amid Current Volatility

Indian equity markets are poised for volatility, with a recovery anticipated in late 2025. Emkay Institutional Equities predicts Nifty reaching 25,000 by December 2025, supported by consumption trends and government spending. Overweight sectors include Discretionary and Healthcare, while Industrials and IT are neutral due to valuation concerns.

In an analysis by Emkay Institutional Equities, India's stock markets are predicted to experience heightened volatility in the immediate future, with prospects of recovery in the latter half of 2025. The firm projects the Nifty index to reach 25,000 by December 2025, driven by better consumption trends, a revival in unsecured lending, and an uptick in government welfare expenditure.

The brokerage maintains an Overweight stance on sectors such as Discretionary, Real Estate, and Healthcare, citing strong demand potential. Meanwhile, Industrials, IT, and Energy have been downgraded to Neutral, and Financials, Staples, and Materials are Underweight due to valuation issues and structural challenges.

Discretionary consumption is anticipated to rebound within the next two to three quarters, fueled by increased hiring in IT, improved liquidity, and a boost in retail lending. Government initiatives, especially those focused on women and robust winter crop sowing, are forecasted to enhance rural consumption.

Capital expenditure growth, which had a compound annual growth rate of 31% from FY21 to FY24, is expected to decelerate to 10-13% because of election-related constraints. Nevertheless, a resurgence is expected in FY26 as policies stabilize. The green energy sector continues to shine amid concerns over capital-heavy industries.

Foreign portfolio investor selling is likely to abate by the second quarter of 2025, helped by stabilized valuations, a peak in the U.S. Dollar Index, and reduced worries over rupee depreciation. The RBI's liquidity measures are projected to underpin domestic equities, notably in the BFSI sector. The downward revisions in earnings are nearing their conclusion, with FY26 estimates already lowered by 3.9% since January 2025. Earnings growth in the mid-teens is anticipated for FY26, led by Financials, Metals, and Energy sectors.

Nirav Sheth, the CEO of Emkay Global Financial Services, commented that markets tend to overreact, and the current turbulence is indicative of that. He noted that India's macroeconomic fundamentals are robust, with a moderate current account deficit and favorable fiscal policies. The expectation is that the most severe phase of earnings downgrades has passed, and renewed governmental spending along with tax relief-induced consumption growth will drive recovery in the second half of 2025, making it an opportune time to invest.

Seshadri Sen, Head of Research at Emkay, emphasized that despite short-term obstacles, the long-term investment case for India is solid. Changing sector dynamics offer compelling opportunities in Discretionary, Real Estate, and Healthcare. As macroeconomic conditions remain stable, investors should adopt a stock-specific strategy to navigate the current volatility.