Stock market may stay range-bound near term, but new highs likely by year-end: Nitin Raheja

Indian equities have navigated a prolonged phase of correction and consolidation, with narrow leadership and uneven earnings shaping recent returns. While valuations have turned more reasonable and growth visibility is improving into FY27, markets may remain range-bound in the near term. A stronger earnings recovery, however, could push indices to fresh highs by year-end, says Nitin Raheja, Executive Director, Head – Discretionary Equities, Julius Baer India.

Edited excerpts from a chat:

Indian equities have seen strong returns but also rising dispersion. How do you assess the risk-reward setup for markets as we head into 2026?
The last one year was a challenging year for Indian markets with the Nifty50 index delivering positive returns while the broader markets were mostly negative. The breadth of the returns was also very narrow with small and mid-caps underperforming. After a 15-month price correction and time consolidation, going ahead, we think the valuations are definitely looking relatively more attractive. When compared to other emerging markets we have seen our premium contract. However, relative to growth we are yet looking evenly priced.On a risk reward basis, we most definitely look better than the beginning of 2025 when growth was slowing and valuations looked disconnected. Currently, we are seeing growth coming back for FY2027 while valuations have corrected. Having said so, we think the markets would remain range-bound in the first half but would end the year on a new high and with better and positive returns than the year gone by.

Which market narratives do you think are overplayed, and where do you see underappreciated opportunities at this stage of the cycle?
We think narratives are behind us as seen in the price corrections across almost all sectors such as EMS, defense, real estate, solar, etc.
Currently the narrative that seems to be consensus is on the bottoming of interest rates and NIMs and banking stocks leading earnings growth. While we remain positive on the financials theme, we do however believe that there is too much of a positive consensus and it does not factor in the risk of further rate cuts. On the other hand, some of the sectors such as EMS, which have corrected, as well as real estate, metals and capital goods sectors, could surprise.

Earnings growth has been uneven over the past few quarters. Do you expect Q3 and Q4 to mark a clear inflection, or is the recovery likely to remain selective?
In our view, earnings growth on a sequential basis should show improvements going ahead. However, the risk to markets is more to do with whether we can get to the 15-16% earnings growth rate. Consensus for the present is at least factoring in that number. However, if growth were to get downgraded, then current valuations would result in muted market returns.

Which sectors do you think will lead earnings growth in Q3 and which ones may disappoint?
We believe NBFCs, insurance, capital markets, and consumer discretionary, including autos, hospitality, and travel could lead to earnings growth in the quarter. Metals and export facing EMS players may disappoint in the current quarter.

EMS space has seen a huge sell-off. Do you think all negatives are priced in at this stage?
While the EMS story continues to remain very positive over the long term, I believe short term demand and supply chain issues could have an impact on their growth rates. While growth will continue to remain amongst the best in class, the elevated valuations of companies have built in higher and linear growth numbers, and hence the correction. We believe we are probably done with the worst of the correction and the stocks would now react more to the commentary that these companies would give out in the quarter.

Financials have been market leaders. How sustainable is the earnings and valuation premium going into FY27?

Within financials, we believe the NBFCs, capital market space, and PSU banks should declare good numbers. As mentioned earlier, the possibility of further rate cuts could delay the bottoming out of the NIMs and pose a risk to the banks, which could then impact profit growth.

Broadly, what is the market expecting from the Union Budget?
With tax changes behind us, whether direct or indirect, the Budget has become more of a policy document indicating the government’s thought process on growth.

The two areas I would like to look forward to is with respect to a PSU disinvestment policy and increasing capital expenditure. Though the government has done its bit to stimulate consumption demand with the recent reduction in GST rates, private capex continues to drag. With government finances also being tight, the economy needs a fresh wave of capital spending to grow at a rate exceeding 8%. For this purpose capital expenditure is very important.

With its current fiscal consolidation targets the government needs to increase its revenues and PSU disinvestment could play an important role there. Further the Government needs to think on what would make the Private Sector change their current risk averseness and increase their capital spending.

In an increasingly fractured and tumultuous geopolitical world, if we need to attract foreign flow, we need higher growth to justify our present valuations.