Seshadri Sen, Head of Research & Strategist, Emkay Global
The alignment of softer rates, improving consumption and stable policy direction creates a strong foundation for the country’s multi-year growth cycle, positioning the Nifty for meaningful upside through 2026, Nirav Sheth, CEO – Institutional Equities, Emkay Global, said.
The brokerage’s outlook is anchored in expectations of a broad consumption recovery beginning in the second half of FY26, enabled by GST 2.0–linked price cuts, income-tax relief and improving employment trends.
GST 2.0 boosts affordability and spur demand
Emkay noted that autos, durables and other discretionary categories stand to benefit meaningfully from improved affordability as the GST overhaul takes effect. The firm believed the recovery in demand, combined with a cyclical upturn in hiring, positions discretionary consumption as the strongest investment theme for 2026.
RBI’s liquidity push
Monetary easing is another critical pillar of the firm’s constructive stance. Emkay highlighted that the Reserve Bank of India’s aggressive liquidity infusion, along with recent repo-rate cuts, is expected to lower borrowing costs and revive retail lending. Retail credit is already showing signs of acceleration, while non-bank lenders continue to outpace banks in capturing demand.
Despite this, the firm remains cautious on large financial institutions, citing structural growth challenges, margin pressures and increased competition from PSU banks.
Capex cycle mixed, but government spending provides support
The report emphasized that India’s capex cycle will be mixed. While private-sector investments are expected to rise only modestly, government-led spending—particularly in railways, power, defence and renewables—continues to provide essential support. An anticipated India–US trade deal, though not time-bound, is seen as a macro catalyst with the potential to alleviate currency pressures and improve external stability.
Domestic flows strong even as FPIs turn net sellers
On market flows, Emkay noted that domestic mutual fund allocations to equities remain robust even as foreign portfolio investors have turned net sellers this year. The primary market, meanwhile, has stayed active with a strong pipeline of issuances, reflecting continued investor appetite at higher valuation levels.
The firm underscored that although large-cap stocks are well positioned to offer stability in a volatile environment, small- and mid-cap segments are better placed to generate alpha. SMID valuations, according to the brokerage, appear higher than those of Nifty constituents because they are concentrated in faster-growing sectors, unlike the index’s heavier exposure to lower-P/E industries such as financials and energy.
Seshadri Sen, Head of Research & Strategist, Emkay Global, emphasised that SMID valuations may appear elevated at first glance, but they remain largely justified given the significant differences in sector composition.
Sectorally, Emkay maintained an overweight stance on discretionary, industrials, healthcare and materials. Discretionary remained the top call, supported by improving demand visibility and GST-driven price tailwinds. The firm is underweight on financials, IT, staples and telecom, noting that large banks remain vulnerable to continued de-rating, while IT is expected to see a more meaningful cyclical recovery only as global technology spending normalises by 2026.
While acknowledging that India’s markets are trading at valuation levels above long-term averages, Emkay argued that sustained earnings improvement and a supportive macro backdrop justify the optimistic Nifty target. It concluded that the alignment of softer interest rates, rising consumption and continued policy stability provides a strong foundation for India’s next phase of growth.
Published on December 11, 2025
