Indian equities have navigated a challenging phase marked by a 15-month price correction and consolidation period, with narrow market leadership and uneven earnings performance shaping recent returns. While the broader market landscape remains complex, improving valuations and growth visibility heading into FY27 present a more balanced risk-reward scenario for investors.

Market Outlook and Valuation Assessment

According to Nitin Raheja, Executive Director and Head of Discretionary Equities at Julius Baer India, the Indian equity markets present a markedly different picture compared to early 2025. After an extended correction phase, valuations have become relatively more attractive, with the premium to other emerging markets contracting significantly.

Raheja expects markets to remain range-bound during the first half but anticipates the indices reaching new highs by year-end, delivering better returns than the previous year. This outlook is supported by the combination of corrected valuations and anticipated growth recovery for FY27.

Sector Rotation and Investment Narratives

The market has witnessed significant narrative shifts, with previous high-momentum sectors experiencing substantial corrections. EMS, defense, real estate, and solar sectors have all undergone price adjustments, moving away from previously overplayed themes.

Currently, the consensus narrative centers on the bottoming of interest rates and Net Interest Margins (NIMs), with banking stocks expected to lead earnings growth. However, Raheja cautions that this positive consensus may not adequately factor in the risk of further rate cuts, which could impact the sustainability of this theme.

Underappreciated opportunities may emerge in:

• EMS sector (after significant correction)
• Real estate
• Metals
• Capital goods sectors

Earnings Growth Expectations

The earnings landscape is expected to show sequential improvements, though the critical question remains whether the market can achieve the consensus expectation of 15-16% earnings growth. Any downgrade to these growth projections could result in muted market returns given current valuations.

Q3 Sector Performance Outlook

EMS Sector Analysis

The EMS space has experienced a significant sell-off, though the long-term story remains positive. Short-term demand and supply chain issues may impact growth rates, while elevated valuations had built in expectations for higher and linear growth numbers. Raheja believes the worst of the correction may be behind the sector, with stocks likely to react more to company commentary in upcoming quarters.

Budget Expectations and Policy Focus

With major tax changes completed, the Union Budget has evolved into primarily a policy document reflecting the government's growth strategy. Key areas of focus include:

Priority Areas:

• PSU disinvestment policy
• Increased capital expenditure
• Stimulating private sector capital spending
• Revenue enhancement through disinvestment

The government faces the challenge of maintaining fiscal consolidation targets while boosting economic growth above 8%. This requires addressing private sector risk aversion and encouraging increased capital spending to complement government initiatives in consumption demand stimulation through recent GST rate reductions.

Indian stock market benchmark indices are expected to witness a tepid opening on Friday, despite positive momentum in global markets as geopolitical tensions appear to be easing. The Gift Nifty, trading around the 25,345 level, indicates a muted start with a discount of nearly 4 points from the Nifty futures' previous close.

Thursday's Market Performance

The Indian stock market successfully broke its three-session losing streak on Thursday, with both major indices posting gains. The market performance demonstrated resilience amid ongoing volatility concerns.

Technical Analysis and Market Outlook

Sensex Technical Levels

According to Shrikant Chouhan, Head Equity Research at Kotak Securities, the Sensex has formed back-to-back indecisive patterns, which may keep the market volatile within a broader trading range. Traders are advised to exercise caution while trading at resistance and support levels due to intraday market volatility.

Nifty 50 Analysis

The Nifty 50 index formed a high-wave candle pattern, indicating significant market indecision with substantial activity on both sides. Nagaraj Shetti, Senior Technical Research Analyst at HDFC Securities, noted that the index formed a small red candle with upper and lower shadows, signaling heightened volatility.

Key technical observations include:

• The crucial 200-day EMA support was regained on Thursday
• Nifty 50 closed above the 200-day EMA level
• Overall near-term trend remains weak, but short-term bounce is developing
• Sustainable move above ₹25,500 could confirm near-term bottom reversal

Derivatives and Options Data

Derivatives data reveals heavy call writing at the 25,400 strike and significant put writing at the 25,200 strike, establishing this range as a key near-term pivot. Hitesh Tailor, Research Analyst at Choice Equity Broking, advises traders to remain cautious near key support levels and wait for confirmed breakout above resistance before taking fresh directional positions.

Bank Nifty Technical Outlook

The Bank Nifty index demonstrated strong performance, rallying 399.80 points to close at ₹59,200.10, forming a classical doji pattern on the daily chart. This indicates market indecision following the recent sell-off. Sudeep Shah, Head - Technical and Derivatives Research at SBI Securities, highlighted that the index has decisively moved above its 50-day EMA, indicating strengthening short-term momentum.

Ponmudi R, CEO of Enrich Money, observed that price action remains confined within a short-term rising channel, indicating consolidation rather than trend initiation. The momentum remains neutral with RSI hovering in the mid-50 zone, reflecting absence of strong directional conviction.

Market Volatility Indicators

The India VIX cooled off towards the 13 level, and further decline would be conducive to sustaining positive sentiment. This volatility measure suggests reduced market anxiety compared to previous sessions, though analysts expect some consolidation before stronger directional moves emerge.