Indian equity valuations have eased from their recent peaks following a market correction, bringing them closer to emerging-market and global averages, Equirus Securities said in its latest India Equity Strategy report.
While large-cap valuations have cooled from post-Covid highs, they remain elevated compared with historical averages. Small-caps appear even more stretched, with the Small/Large forward P/E ratio near 1.25x versus a long-term mean of 0.9x — a gap that leaves the segment particularly vulnerable to sharp reversals.
Market performance continues to diverge across capitalisation tiers. Mid-caps remain on relatively strong fundamental footing due to improving earnings visibility, while small-caps appear stretched and susceptible to any weakening in domestic flows. Large-caps remain the preferred anchor for risk management given more reasonable valuations relative to historical bands.
Risk-reward favours large caps and quality compounders where valuations are closer to historical bands, while mid/small caps remain vulnerable to any earnings disappointment.
In its sector commentary, Equirus reported that capital goods, consumer durables and healthcare are trading significantly above long-term averages. Autos, FMCG and financial services hover around mid-cycle valuations, while banks, IT, metals, oil and gas and power trade near or below long-term historical levels, offering potential value in select pockets.
Sector-specific
Equirus highlighted that it remains overweight on sectors including autos, banks, capital markets, FMCG and internet platforms, citing improved earnings visibility and more reasonable valuations in parts of the large-cap universe. The brokerage held underweight views on building materials, industrials and defence, real estate, textiles and logistics, while maintaining equal weight on cement, chemicals, consumer durables, infrastructure, IT services, metals and mining, NBFCs, healthcare and retail.
Key highlights
The report pointed to India’s “anti-AI trade” dynamic, explaining that domestic flows — driven by strong SIP inflows growing at a 27 per cent CAGR — have provided structural stability even as foreign institutional investors shift toward AI-linked opportunities in markets such as South Korea and Taiwan. As a result, domestic institutional investor ownership has risen to 18.6 per cent, surpassing FII ownership, which has slipped to 16.9 per cent.
Earnings momentum is expected to act as a major positive trigger from H2FY26 onward. While consensus EPS estimates for CY25 have been cut by around 13 per cent, Equirus suggested that the next leg of market re-rating would require an earnings-surprise cycle rather than liquidity-driven gains. The brokerage projects Nifty 50 earnings growth of 17 per cent and 14 per cent in CY26 and CY27, respectively.
Equirus cited stable crude oil prices in the $63–70 per barrel range as a tailwind for multiple sectors, alongside signs of strengthening rural demand supported by robust reservoir levels. However, the firm flagged the US tariff shock as a key macro headwind; India’s exports to the US have fallen sharply since May 2025, hurting labour-intensive sectors such as textiles. Export diversification, however, has softened the blow.
On monetary conditions, the note said that with inflation cooling to around 1–2 per cent year-on-year, the RBI’s cumulative 100-basis-point rate cuts have eased liquidity and aided early credit growth revival. The brokerage expects continued monetary support if low inflation persists.
Preferred stocks
The firm’s top stock ideas span market caps. ABB India, Axis Bank and Eternal feature among its preferred large-cap picks, while Aditya Birla Real Estate, Alkem Laboratories and APL Apollo Tubes lead its mid- and small-cap recommendations.
Published on December 1, 2025
